Franchise Growth Made Simple: The Role of Vendor Financing

You may be familiar with vendor financing as a tool whereby companies partner with a finance provider to extend financing to their customers, and even on to the end-user businesses that purchase from those customers. Programs ease upfront cost barriers, and help companies maintain focus on their core activities. 

Traditional uses of vendor financing are in industries such as technology, transportation and manufacturing. But vendor financing has myriad applications – and franchising is one.

In franchising, the "vendor" is the franchisor. Vendor financing involves the franchisor providing a financing program to a franchisee. For potential new franchisees, the financing can help with the initial purchase of the franchise. For existing franchisees, financing can help with equipment, expansion and other costs they must incur to grow. In both cases, vendor financing fuels growth and builds stronger, longer-term relationships between the two entities.

Customized financing programs

Some franchisors may be able to offer direct, in-house financing to franchisees. Many, though, find it advantageous to partner with a strong, independent financing provider. A partner like this will avoid “one-size-fits-all” financing packages. Instead, they will develop tailored programs that work for the franchisor and for their franchisees. They can even create programs tailored for individual franchisees.

Whether the program is a loan, lease or more innovative option, an independent finance partner can incorporate flexible terms and accommodations to help with seasonality concerns. Along with flexibility, independent providers can typically obtain quick-turn credit decisions and expedite funding. A financing provider committed to working with a franchisor on a long-term basis, versus a transactional one, will take time to get to know the franchisor’s business model and operations, and work together to achieve its goals.

For the franchisor

Vendor programs offer key benefits for franchisors, including:

• Ability to attract more franchisees. Offering vendor financing can make it simpler and faster for new franchisees to come on board. It removes the barrier of major upfront costs, and in many cases, offers an option to franchisees where other options do not exist.
• Increased sales. By removing financial barriers for franchisees, vendor financing can help franchisors sell more franchises and sell more effectively to their preferred market. It then helps franchisees move directly into generating sales.  
• Stronger, more resilient business relationships. Vendor financing demonstrates the franchisor's commitment to the franchisee and their success, and prioritizes mutual goals. 

For the franchisee

Franchise financing offers critically important benefits for franchisees, including:

• Needed capital. Vendor financing eliminates or reduces what is frequently a major roadblock to a potential franchisee, helping those without sufficient capital or established credit to secure a franchise. It can also help with franchisee equipment financing, removing yet another cost obstacle.
• Speed: Particularly if the franchisor is working with a solid, experienced independent finance provider, a franchisee could secure financing much more quickly than if going through traditional routes on their own. This can result in gaining a competitive edge in their market.
• Customized financing programs: Franchisees can often obtain a financing program tailored to their situation, market and needs.

Fast, effective results

Franchise financing can be challenging for franchisors as well as franchisees. Vendor financing can offer an ideal solution that allows franchisors to grow faster and allows franchisees the assets to join the business and start producing revenue more quickly.

Mitsubishi HC Capital America is a commercial finance company that provides customized solutions to help organizations of all sizes accelerate growth. Experts throughout North America develop comprehensive financing solutions to help franchisors build their businesses effectively and efficiently. Contact us to see how vendor financing can help your business accelerate growth.