Bedding retailer Snooze has become the latest franchise to offer vendor finance for its franchisees, following in the footsteps of the likes of Baker’s Delight.
Snooze will offer approved prospective franchisees the option of receiving vendor finance.
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This will allow new franchise partners to acquire a store through direct finance from Snooze, rather than a bank or another conventional lender.
Snooze isn’t the first franchise to highlight the option of vendor finance – Jim’s Group is considering it, while Baker’s Delight already offers it.
However, Jason Gehrke, director of the Franchise Advisory Centre, says one of the downsides of vendor finance is that it comes down to the financial strength of the franchisor, which can hinder growth.
“For example, if a franchisor only has the capital reserve to vendor finance 10 franchisees into a group, but they have a target of 20 new outlets, that’s going to be challenging for them,” he says.
“The second challenge is that the buyer may not be as committed to the transaction if they themselves haven’t staked something by way of hurt money.”
“That’s one of the factors that helps drive the success of a franchise – if the franchisee has themselves staked something in the future success of the business.”
Snooze managing director Simon Beaty said in statement he is confident the new offering will open the doors to prospective buyers who have previously been turned away from the big banks.
“We’re so confident in our business model that we’re prepared [to] give anyone interested in becoming a Snooze franchise partner a fair go,” Beaty said.
Snooze has bucked the trend of the retail downturn – it is expecting to grow its 73-strong store network to 100 stores over the next three years.
“[Snooze has] an aggressive growth strategy firmly in place… with proven results amidst some of the toughest retail conditions in history,” Beaty said.
“Franchise partners can be confident they’re investing in a business model that’s both profitable, and tried and tested.”
Successful applicants of vendor finance will receive initial and ongoing training, and will be kept up-to-speed with the latest industry standards and trends.
Gehrke says it’s unlikely Snooze is offering prospective franchisees 100% vendor finance, which can be a foolish move.
“Where it works well is where it’s not 100% because then the buyer still has to bring some money to the table,” he says.
Gehrke says vendor finance is “coming in across the board”, indicating it is not more or less suited to certain categories.
However, Gehrke believes it is “silly” to assume the option is becoming more popular due solely to the banks’ refusal to lend.
“Real estate prices are going backwards across the board and that is substantially diminishing the equity people can bring to the table to raise a loan,” he says.
“The banks have money to spend but if people don’t have any equity, why would any lender give them a loan?”
“We’re struggling with almost a generation of business buyers that will struggle to raise finance by traditional means because of their lack of equity.”