Securing a franchise business loan can be a critical step for aspiring entrepreneurs who want the freedom of owning their own business without the challenge of building a brand from scratch.  

With over 94,000 franchise outlets contributing $174 billion to Australia’s economy in 2023, the franchise sector is an engine-room of job creation, innovation and growth. For the franchisee, it can be an opportunity to take control of their future, build wealth, and potentially transform their life by tapping into a proven business model with the support of a trusted brand.

Given most franchise opportunities come with a starting investment of $250,000, becoming a franchisee is often not possible without the help of financing. Getting a loan through a specialist franchise banking partner like NAB is a common first step a franchisee takes on the way to realising their dream.

Relationship banking with a growth mindset

NAB understands that successful franchise lending is more than just about providing funds; it’s about empowering business owners with the right tools and support to thrive. NAB’s franchise banking team approaches lending with a focus on three key pillars; character, capacity and collateral.

These three, time-tested factors are at the heart of our lending practices – and the framework we use to assess a franchisee’s eligibility.  While every loan provider has different guidelines, these are useful to keep in mind if you’re an aspiring franchisee looking to put your best foot forward when you apply for finance. 

• Character – In relation to franchise lending, we are talking about the person themselves. What is their character? Do they have a plan for the business? Are they engaged in their business and committed? Are they forthcoming with information and mindful about the opportunities and challenges ahead? From a franchisor perspective, how committed are they to their brand? Will they help, if required, to ensure the success of their franchisees?

• Capacity – While every bank is different, NAB’s franchise bankers will look closely at a customer’s capacity to pay back the loan within the timeframe of the lease or franchise agreement (which typically differs from traditional banking loans). Franchisee financial performance is key, and a franchisor that ensures the system is performing strongly with short payback periods, will more easily attract finance and facilitate growth. 

• Collateral – This is assessed differently to the same metric in a traditional business. Rather than ‘bricks and mortar’ or other physical assets, it incorporates non-tangible assets like ‘brand’. What is the strength of the franchise brand? What is the demand by the end consumer? What is the demand to buy into the franchise and what is its value within the market? The franchisor plays a key role in determining the overall value of the brand, its reputation, longevity and sustainable growth.

Tip 1: Develop a solid business plan 

It’s no surprise that every successful business needs a thoughtful business plan before approaching a bank for funding. For franchisees, a tailored business plan is crucial to demonstrate to lenders how they will meet their repayments.  

This plan should include an overview of the franchise, market analysis, marketing strategy, and financial projections, along with details on how you’ll manage the franchise to ensure profitability.

Not only is this essential for securing finance, but it also serves as a roadmap to help manage the business in the future. 

Tip 2: Find a ‘solutions-focused’ banking partner

Finding a dedicated banking partner with a talent for ‘solutions’ can make everything easier.

Every franchisee is unique and requires personalised financing. 

NAB’s franchise business team, for instance, focuses on building solid relationships by working with clients to understand their unique characteristics and offer a tailored solution to match these needs. 

Tip 3: Master the nuances of franchise financing

Franchise loans, unlike typical business loans, are often tied to the franchise agreement, usually with a term of up to 10 years, sometimes shorter. This means franchisees need a viable business model that can meet financial obligations within this timeframe.

Banks offer different terms based on their relationship with the franchisor. For example, NAB’s loan amounts can vary depending on whether the franchisor is a registered partner or an unregistered partner. Understanding these partnerships and metrics is crucial to ensuring your loan meets your business needs. Franchisees must always have a clear understanding of their financing terms.

Your roadmap to franchise success starts here

Securing a franchise business loan may seem daunting, but with the right approach and a supportive banking partner, it’s a challenge you can confidently overcome. By developing a solid business plan, finding a solutions-focused banking partner, and mastering the nuances of franchise financing, you’ll be well on your way to turning your entrepreneurial dreams into reality. Consult your franchisor as to who their key banking partners are and their requirements for equity and finance.

To find more information, speak to a NAB banker or visit nab.com.au/franchising

Despina Kathestides is head of franchise banking at NAB.

Important information
This article has been prepared by NAB and contains general information only. It is not
intended to be relied on as advice. The information provided does not take into account your
objectives, financial situation, or needs. You should seek your own legal, financial, taxation
or other professional advice before you make any decisions. Credit products are subject to
eligibility criteria. Terms, conditions, fees and charges apply.
Information correct as at September 2024.
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