When loan options narrow: financing partners, can help: franchise systems that put the time and effort toward establishing financing partner relationships provide an extremely valuable component that each franchisee can tap into to succeed.

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Volatile change in global credit markets is year did not leave the franchising industry untouched. So, the question, "How can I obtain funding?" requires a bit more detailed answer than last year, when credit options were widespread and adequate liquidity was not on the radar.

While a pipeline of reasonably-priced funding continues, finding the optimal path to obtaining it has taken on greater significance. With this financial scenario underway, the advantages of "a financing partner relationship" become even more attractive. But, just what is a financing partner relationship? And what qualities of this relationship can help in today's marketplace?

Relationship Qualities

In a nutshell, a successful financing partner relationship is the result, over time, of mutually-beneficial teamwork between a committed franchise system and a solution-oriented financial institution. To successfully launch such a working relationship, both sides have significant homework to do early on. Both the franchise company and financing institution must commit time and effort to examining the other's core business qualities, before the path to working successfully together can come into view.

As a franchise organization, it must candidly assess the core values of the lender's business culture, especially its willingness to work closely with the company and to understand its short-term, interim and long-term strategies. One will need to analyze the lender's products and services to ensure an appropriate match with the franchise's needs. And one will want to look at the overall quality of the lender's customer service, the reach of its lending experience and financial resources, particularly its track record to committing to work with a franchise company on an ongoing basis over time.

Meanwhile, on the other side of the table, the potential lender will diligently analyze the business data and corporate franchise information that is submitted. Facilitating the potential lending partner's understanding of a franchise business model, and its successes and challenges to date, helps the lender to prepare the best approach to serving the franchise system's financial needs going forward. To facilitate this analysis, the franchise organization can expect to submit:

* a current UFOC,

* all current financial data,

* a description of growth strategy (immediate, intermediate and long-term),

* a detailed franchisee profile,

* a description of franchisee-screening criteria,

* characteristics that have created success for the franchise concept,

* a detailed description of the system's franchisee-support system, and

* a detailed description of the total project cost associated with a new location.

Process in Review

Following this front-end analysis, the potential lending partner will meet with the franchise company to review its initial findings, prior to proposing a tailored approach to a lending partnership. During this discussion, the franchise organization will want to take note if the lender clearly expresses a strong desire, supported by the necessary attributes, to craft a partnership that is in the very best interests of the franchise company and franchisees. Questions regarding a potential financing partner's qualifications, at a minimum, should include:

* Is the partner knowledgeable and enthusiastic about the particular industry?

* Does the lender offer the breadth and depth of business solutions to meet as many franchisee scenarios as possible?

* Does the company exhibit superior "one-on-one" customer service?

* Is its reliability and stability proven by past performance?

After the franchise system completes a thorough evaluation of these characteristics, it will be in an informed position to select or decline the possible partner's proposal, following its presentation. While completing its due diligence prior to establishing a business partnership, the franchise organization may discover that it would be best served by forming these business partnerships with multiple lenders. The unique profile and strategic direction of a particular franchise system could mean that a select group of lenders may be more appropriate to service a wide range of franchisee needs, if the system has a sizeable number of franchise units. Greater diversification of funding resources can also be a safeguard against volatility in the markets, as witnessed in recent months.

Communicating the Benefits to Franchisees

Once the franchise company has settled on its preferred lender, or group of lenders, what is the next step? It is time to spread the word to system franchisees about these new financing partners. The benefits for franchisees include:

* Working with a finance solutions partner or partners with in-depth knowledge of the franchise system's opportunities and risks, enhances the franchisee's chance of business Success.

* Improved time management means the franchisee is freed up to concentrate on how to best manage and grow the business rather than spend time searching for an appropriate lender knowledgeable about the brand.

* Improved reliability in meeting future funding reinforces a franchisee's confidence, with access to ongoing funding that has been given a quality approval by the franchise system.

* Enhanced economies of scale in loan originations, backed by the heightened risk management assessment of the partnering lending institution, create a better opportunity for a more competitive source of capital for the franchisee.

Franchise companies also clearly benefit from implementation of the preferred lender model. Diversified lending sources mean enhanced financing options for both existing and prospective franchisees. With committed, dedicated support by the financing partner in place to assist franchisees in qualifying for funding, there is no need for a franchise organization to develop its own financing division.

All in all, franchise systems that put the time and effort toward establishing financing partner relationships provide an extremely valuable component that each franchisee can tap into to succeed, particularly when markets are in a state of flux.

Patrick Connealy is managing director of NCB's Corporate Banking Group in Arlington, Va. He can be reached at 703-302-1962 or [e-mail].