Where size does matter: Smaller QSRs hit harder by credit squeeze
With the global economy slowing down and the threat of a recession remote but still looming, we asked QSR’s if their franchisee applicants have had difficulty securing bank credit. The answer: Bank lending has indeed been tightening, most operators agreed, with smaller QSRs with 40 or less stores being less favored for loans rather than larger operators.
Part of it seems to stem from the strong reputation and longstanding relationships of larger operators with banks, which weigh on credit loan deliberations. This is probably why most of the QSRs we interviewed, which were generally larger and more established, continued to receive preferential treatment from banks despite an admittedly tighter credit market.
Take for example The Foodco Group, which owns the prolific Jamaica Blue and Muffin Break chains.
Managing director Serge Infanti said: “The banks will lend a portion of the costs required for the business ‘unsupported’ - i.e. not secured against a tangible asset, like a house. The security the bank holds is over the ‘business goodwill’ effectively, and is a testament to the long-standing relationships that Foodco shares with the banks and their faith in the robustness of our brands.”
He said it also helped Foodco that their endorsements of capital requests, especially for refurbishments, have led to increased business profits, resulting in timely payment of the loans. “We also have a great working relationship with the banks in the area of refinancing and especially in supporting refurbishments as Foodco has been able to demonstrate significant benefits to business performance post refurbishment.”
Despite having an relatively easier time securing credit approval, Retail Zoo, owner of Salsa’s Fresh Mex Grill and Boost Juice Bars, noticed that banks are now more scrutinizing of applicants than ever before to ensure that no warning signs are overlooked. It helps then to have a proven track record that banks can refer to.
“Whilst the banks may require more detailed information from today’s prospective franchisees, the banks are showing an appetite to support our new and existing Salsa’s franchisees and the continued growth of the business. Given the strength of our network performance, we are not finding bank lending difficult,” said Brett Carman, GM, Salsa’s Fresh Mex Grill.
Lord of the Fries agreed that there is now a tougher lending environment, even though they are personally unaffected by the squeeze. “The banks have definitely been making it harder to borrow money,” said Sam Koronczyk, one of the owners and co-founder. “Luckily we have had no problems with our franchisees acquiring the funds to open new Lord of the Fries stores.”
Murat Coskun, CEO of Sunshine Kebabs, considers the situation as half glass full, noting that banks continue to entertain franchisee proposals instead of shutting them down entirely. “Still hard but I think banks are at least keen to speak to prospective franchisees now. Having said that equity is still king and without it not much is available,” he said.
Seeing that bank lending “remains a major barrier to entry for a lot of people wanting to own their own business,” some operators like Pacific Retail Management have begun offering more accommodating set-ups like deferred payment schemes.
“Pacific Retail Management offers a Manage to Own program, where up and coming entrepreneurs can put down a small deposit and then pay for the business from the profits they generate.” said Nicola Mills, MD, Pacific Retail Management, the franchise group behind Go Sushi, Kick! Juice Bars and Wasabi Warriors. “This has had a great response, and opened up more business opportunities for people across all three of our brands.
