How the Confluence of Covid, Seasonality, and Technology Boost Franchise Financing

Digital Lending

If the last year has taught businesses anything, it’s how costly disruption can be. Beyond the pandemic, however, there are whole industries subject to periodic disruption in the form of seasonality. Think tax preparers, ski lodges, marinas, lawn services, even food trucks, and you’ll have the idea.

And just as governments around the world rushed in help businesses from going under as customers stayed away in droves during Covid-19 lockdowns, either by order or from caution, another vast superstructure, this one comprised of franchisers, is equally adept at keeping businesses afloat, typically by extending stop-gap credit between busy seasons. 

The case for lending to franchisees

Boiled down, franchising is a marketing concept. A franchiser licenses to franchisees its business model, brand, intellectual property, know-how, procedures, and rights to sell its branded products and services. According to US Census Bureau report, the industries with the most franchises are:

  • Fast-food restaurants
  • Gas stations with convenience stores
  • Full-service restaurants
  • Hotels and motels (ex casinos)
  • Nonalcoholic beverage bars
  • Real estate agencies
  • Fitness centers
  • Beauty salons
  • Janitorial services

Franchised businesses have a higher success rate than independent startups. After two years, 70% of independent startups are still in business, according to the US Small Business Administration and the Census Bureau. After five years, the survival rate for independent startups drops to 50%. By the 10-year mark, only 30% of businesses are still operating. In contrast, 95% of franchises were still in business after five years, and 91% after seven years, says the International Franchise Association.

“It can be more expensive to buy a franchise, but the resources and benefits — from search-engine prowess to detailed business planning — that come from joining forces with an established brand can really set franchisees up for success,” says Dmitry Voronenko, CEO and co-founder of lending-technology pace-setter TurnKey Lender. “Anyway, it’s arguable that the initial outlay pays for things like national and regional marketing, service-quality oversight, and business insights from other successful franchisees that have historically contributed to success on the ground.”

TurnKey Lender and H&R Block have teamed up

Well before Covid buffaloed businesses offline last year, franchiser H&R Block was steeped in seasonality. Despite timeline changes this year and last for when tax filings are due, tax season usually peaks in April for Americans. Typically, the company reports a loss the quarter right after the tax rush. And while 66-year-old H&R Block is accustomed to earnings coming in a rush — and equally accustomed to helping its franchises bridge financing gaps in slow periods — it reached out to TurnKey Lender for help in automating and digitizing this internal lending program.

“That’s absolutely our wheelhouse,” says Voronenko. “H&R Block came to us for strategies that would help them heighten satisfaction among their franchise owners and develop a funding strategy for franchise expansion.”

In choosing TurnKey Lender’s Unified Lending Management platform to help the company meet its franchisees’ cash-flow needs, the tax-preparer gets a seamless, white-label solution that’s fast, accurate, easy to use and includes reporting and analytics for sharing information to and from the system in seconds. In a macro view,  H&R Block’s engagement with TurnKey Lender reflects consulting firm Gartner’s opinion that business leaders should act to soften the impact of Covid-19 and ensure operational continuity by accelerating digital initiatives.

In choosing TurnKey Lender’s Unified Lending Management platform to help the company meet its franchisees’ cash-flow needs, the tax-preparer gets a seamless, white-label solution that’s fast, accurate, easy to use, and includes reporting and analytics for sharing information to and from the system in seconds.

Financing from a (very) trusted source

As mentioned, a big point of attraction in franchises is that their operators don’t have to reinvent the wheel every time they hit a snag. For franchisers like H&R Black, this can extend to financing, whether the franchisee’s aim is to smooth over a seasonal dry spell or fund an expansion of its franchise network.

In an example taken from Entrepreneur magazine, Ace Hardware “provides internal-inventory financing to help existing franchisees open new stores without having to go back to the bank for financing.” Similarly, the UPS Store offers franchisees financing for major equipment for food preparation and delivery. Marco’s Pizza, a national chain in the US, highlights in-house lending directly to qualified franchisees with a facility backed by a private-equity fund.

Voronenko expects in-house financing to become even more of a staple for franchisers that are eager to see their licensed affiliates thrive. “It’s gathering steam,” he says. “Franchisers know their affiliates face a lot of uncertainty these days. Having a robust financing facility in-house sends a calming message.

And though it’s reassuring, an efficient, user-friendly lending solution isn’t a loss leader. “There’s money to be made from lending to franchisees,” says Voronenko. “And franchisees rest easier knowing their lender has an ongoing and vested interest in their success.”  

A lending solution for all seasons

Long before the coronavirus crisis, TurnKey Lender was proving its leadership in embedded financing technology. 

In 2014, TurnKey Lender started with a vision for a new kind of lending: Enterprise Unified Lending Management, where companies of all sizes can offer fast, secure financing to their clients using technology that’s as easy to use as turning a key and as reliable as an ATM. Digital loan origination, alternative credit scoring, AI-based underwriting, loan servicing, debt collection, reporting, compliance, TurnKey Lender’s solution includes all these core functionalities and more. The company’s Enterprise Unified Lending Management solution also supports advanced analytics for dynamic business insights through reporting functionality that can speed through complex data and create a custom report in seconds.

“Since our founding, and especially during the current healthcare crisis, TurnKey Lender has been seen as a leading player in embedded lending,” says Voronenko. “We provide the only SaaS platform that automates all digital lending operations — and all digital lending decisions — at every stage of every loan’s life cycle.”

Ready to start the digital transformation of your franchise financing operation? Reach out for a personalized TurnKey Lender demo today.

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