July/August 2023Previous IssuesSponsored Content

Promoted Story: a Franchise Banking Partner: Focus on Expertise, Flexibility, and Execution

Growth for your franchise net-work requires access to capital. Whether it be for day-to-day cash flow, capital expenditures, location start-ups, or acquisitions, predictable access to a bank represents a key factor in the growth of any franchise network. So how do you, as a franchisor or franchisee, choose a banking partner? What separates one bank from another?

Strength in franchise banking isn’t simply a function of lower cost. Choosing a banking partner that demonstrates clear strengths in terms of expertise, flexibility, and execution can be a strategic differentiator for your franchise system’s growth potential.

What is “expertise” from a banking perspective?

As a franchisor or franchisee, ask yourself: “Does my banker speak the language of franchising?” Franchising isn’t an industry; it’s a business model applied to numerous industry segments. It’s a lower risk business model that’s uniquely designed to accelerate growth. The banking partner you select should be able to quickly and concisely answer the question: “Why franchise?”

  1. A franchise business provides “ease of entry” and “proof of concept” at the franchisee level. While a franchise model typically requires that the bulk of capital expenditure be addressed by the franchisee, financing for this capital expenditure is readily available through an established and highly competitive market for franchise lending and ancillary banking services. For larger, multi-site, regionally-based franchisees, there is also available investment by private equity firms as they increasingly recognize the value of franchise networks as an investment vehicle. Ready access to capital provides ease of entry for qualifying new franchisees, and proof of concept provides the confidence that lenders and private equity firms need in order to consistently deploy capital.
  2. A franchise business is capital-light at the franchisor level. As the capital required to grow the business and open new locations comes from investment and royalty fees from franchisees, the franchise system can grow quickly while the franchisor has the ability to dedicate available capital to the corporate infrastructure required to support its franchisees in other areas.
  3. Franchises are considered a lower-risk business model than traditional non-franchise businesses for many reasons. To begin with, the banner is usually an established business, typically with a lengthy track record of success. Then there’s the significant support between the franchisor and the franchisee to consider; which includes operational support, site selection, training, and marketing. Lastly, as each franchise location is an extension of the brand, the franchisor has a vested interest in the success of each location and supports its franchisees accordingly.

At CIBC, expertise is driven and disseminated through a specialized national team dedicated to franchising. This National Industry Programs team brings together teams from across commercial banking, business banking, and wealth management, and acts as the direct intermediary between the Canadian Franchise Association and its members.

What is “flexibility” from a banking perspective?

Flexibility in franchise banking addresses the reality that not all franchises and franchise systems are created equal. First and foremost, franchise systems can be defined by the level of support and oversight provided by the franchisor. Does your bank provide the flexibility to support business models beyond that of traditional franchises?

“Franchise-like” systems, such as dealer networks and member-based systems, share many of the common characteristics of traditional franchise systems. In many instances, however, due to the unique nature of the markets they serve, “franchise-like” systems may provide less support and/or lower oversight in exchange for a lower royalty fee and cost structure. At CIBC, the team provides the flexibility and support required for both franchise and “franchise-like” systems to achieve their growth.

Flexibility can also be demonstrated by how a bank can seamlessly support franchisors and franchisees throughout their business’ evolutionary life cycle. An early stage franchise system with owner-manager franchisees requires different banking solutions and support than more established, multi-location franchisees. Can your bank clearly articulate a seamless banking experience across its business and commercial banking platforms as your franchise system grows and matures, and the need for capital and advisory solutions increases?

Flexibility is also demonstrated by adjusting strategies to the changing needs of your maturing business.
Questions to consider include:

  • Can my bank support my franchise system through tough economic cycles or if an unanticipated shock to the economy occurs?
  • Can my bank support a balance between the need for efficiency within my franchise system with the need to ensure fraud protection?
  • Can my bank support me as a business owner with advice for today and for the long term, such as ownership transition in the future?
  • Can my bank support me with advice as a franchise owner if I choose to sell my business?

At CIBC, the team is by your side for your entire journey.

What is “execution” from a banking perspective?

“Execution” from a banking perspective is defined by both an ease of doing business together and a consistent track record of delivering on client expectations. You may find similar programs for franchise systems at different banks, but it’s the execution that sets them apart.

While dollars and cents matter, the differences between franchise banking programs are subtle. The deciding factor in selecting a bank should always come back to execution.

Questions that you should consider asking include the following:

  • Does your bank have a national team that specializes in franchising, and what is its role within the bank?
  • Will I be able to access a banker in my local market to be my relationship manager and will that person have an understanding of franchising and, more specifically, the program developed within your bank for my franchise?
  • What other specialists and leaders within the bank will I have access to as I grow my franchise systems business with your bank?
  • What do timelines look like for approvals on financing?
  • If I’m a franchisee, what level of communication can I expect between the bank and my franchisor?

CIBC is a national sponsor of the Canadian Franchise Association and has been supporting franchisors and franchisees in Canada for over 30 years. If you are involved in a franchise system and looking for advice on growing your business, we are here to help. Contact us at www.cibc.com/commercial.