What’s in a name could mean the difference in whether you receive approval to finance your next franchise endeavor.
In the competitive world of financing, lenders want to know their investment isn’t based on a whim or gut feeling. A franchise company’s name recognition, reputation, proven track record and support structure are critical when it comes time for banks to analyze risk.
Lara Forchuk, an account manager with Guidant Financial, thinks established brands under the WellBiz Brands portfolio offer an advantage in the franchising world and help show that existing business models decrease the risk of the loan.
“Lenders like to see brands that have past performance established,” she says. “We see this specifically with established brands with the reduction of cash down payment that is required for a Small Business Administration (SBA) loan.”
Eric Schechterman, chief development officer for Benetrends Financial, also knows this and likes to use it to the advantage of his prospective WellBiz Brands portfolio brands franchisees seeking loans for new locations.
“I have an easier job getting a Radiant Waxing® deal done because I can show the bank that it’s part of a larger conglomerate that’s all under one roof and supports the systems, the operations, the marketing – all of that,” Schechterman says.
That’s why WellBiz Brands’ portfolio of brands collaborate with preferred lenders like Guidant Financial, Benetrends, FranFund and others. These lenders specialize in helping secure loans for new and existing franchisees. They also see the broad lending appeal of WellBiz Brands portfolio of brands as a benefit to their customers, especially in an economic climate rife with uncertainty.
Reputation and Support Ease Financial Climate Challenges
News headlines about the economy can be deceiving when it comes to franchising and the beauty and wellness industry.
The self-care industry franchise model is surging and worthy of investment, according to analysts and market reports. Last year, the beauty and personal care market was valued at about $187 billion and expected to grow at a compound annual growth rate (CAGR) of about 3% through 2027, according to a market analysis report from Statista®. The market’s largest segment, personal care, was valued at about $40 billion in 2022.
“The beauty and personal care market is thriving and one of the fastest growing consumer markets,” according to Statista analysts. “The main reason for this strong growth is the generational shift with young consumers entering the market. At the same time, this change is reinforced by social media, internationality and eCommerce, which have a lasting effect on buying behavior when it comes to beauty products. Trends from all over the world are spreading and changing the daily beauty and care routine.”
So, when the credit market tightens, it doesn’t mean banks don’t have money to lend. It’s just a more selective process than it has been in the past.
“Yes, banks have more appetite, and yes, banks are looking for more opportunities,” Schechterman says. “But there are more opportunities out there than there are banks. It still comes down to what the banks are looking for.”
And the companies that have proven track records with resources to help set up new and existing franchisees for success, i.e. staying open and paying off the loan, traditionally get preference over startups. WellBiz Brands’ approach provides significant resources to their portfolio brands franchisees that include ongoing training, hiring assistance, marketing and purchasing power.
Another holdup in lending in the current market is the shortage of available commercial real estate space, which is something the WellBiz Brands team helps potential franchisees find.
“Our lenders are currently getting deals officially approved within five to 15 business days,” says Shay Kleinschmidt, FranFund’s vice president of lending. “However, lenders are not approving loans without a letter of intent or drafted lease for the business’s location.”
In a time when available space is at a premium, finding real estate in a timely fashion can mean the difference in securing a loan. WellBiz Brands’ established program working with commercial agents around the country helps expedite the process.
Lending Options Depend on Number of Locations
Whether a franchisee is seeking to fund their first or fifth location can determine which financing option is best for them.
Most of Benetrends Financial’s franchising business comes from first-time owners. While the company has a variety of lending options, the most common type used is rollover funding, in which a franchisee uses an existing 401(k) retirement account toward opening a business.
One of the original architects of that type of funding mechanism was Benetrends’ founder, Len Fischer.
“The rollover is probably more of what we do, but over the years loans have become a bigger part of what we do, as well,” Schechterman says.
And in the case of the companies, using government-backed loans through the SBA is always an option, although not necessarily the fastest.
Looking Ahead
There’s a bullish outlook for the beauty and wellness franchising business in 2024.
Consumer spending is expected to continue within the wellness and beauty sector, with customers reprioritizing their spending on experiences rather than possessions, according to industry reports.
And while there has been some decline in other sectors and increased borrowing rates, both Schechterman and Kleinschmidt are seeing a willingness from banks to lend to established brands with proven track records.
Looking ahead to 2024, Forchuk predicts much of the same as 2023.
“Clients are looking for the cheapest money possible and that comes in the form of a rollover, if they’re eligible,” she says. “They can get into business without having any debt, which gets them to a cash flow positive position faster.”
