2015 will continue to see a high percentage of franchise concepts in a growth mode across the country which will be beneficial to the economy and to the overall business sector. As regional and national QSR franchise concepts compete non-stop for unit growth and increased revenue, we are experiencing more franchisors that are becoming increasingly sophisticated with the types of finance programs that are developed to drive these initiatives. We are also experiencing more franchisors discovering how the nuances of a finance program can positively impact their bottom line and drive unit growth and attract more franchisors to their brand.

This growth mode however also brings several challenges to the franchisors and franchisees. The desire for multi-unit growth and increased sales growth is directly impacted by the availability of capital for expansion. Growth plans can be restricted if lending is constricted and if concepts do not have a commercial lender that has a critical understanding of franchise operations that equates to flexible yet responsible underwriting.

Franchisors that provide wider access to financing for franchisees in the coming year will allow them to open more units and more units at a faster rate. This in turn grows the concept and allows for more profitability. Our specialized franchise finance team members are meeting with franchisors that see the value and importance of developing a lending program for their franchisees with commercial lenders specifically focused on providing their franchisees with better access to capital for development or remodeling and reimaging projects. The most successful franchisors see that part of the strength and stability of the franchise brand is also based on the long-term financial stability of the franchisees and the unit economics.

2015 Outlook

We anticipate that the year ahead will be driven by concepts continuing to focus on optimizing operational efficiencies to drive profit, strong unit expansion, and branding and re-imaging projects. Financing will play a crucial role in several areas including:

• Equipment and Technology: We don’t expect to see drastic changes with the QSR equipment, however, there is an effort by many brands to upgrade and integrate new technology to drive efficiencies and cost savings. Much of this is concentrated around the POS systems that allow for more control over the costs for franchisees -- specifically, fraud and theft protection systems that integrate between the POS solution and the surveillance systems.
• Re-Imaging/Remodeling: Most of the remodels and upgrades occur for the purpose of staying competitive and remaining top of mind to drive new and recurring sales. During a struggling economy, the occurrence of reimaging initiatives becomes more relaxed. In our improving economy, these upgrades are rolled-out more aggressively with many being mandated, not just optional. Accessing capital for these non-equipment projects is a current deficiency in this market. This will make the push for remodels difficult to achieve in the timelines associated if the right lender is not chosen. To assist a franchise system with these efforts, access to financing is important, but it also has to be available quickly. This same access to capital can help franchisors speed up the process of reimaging/remodeling which helps improve comparative sales ratios and drives the development of new units.
• Unit Growth: To drive development, successful franchisors look at the end result, not just short-term gains. Choosing a lender that can provide 95% to 100% of the funding for the project to the entire franchise system so nearly all franchisees have access to the capital is important to the health of the franchise. Generally, where this fails, is when a brand focuses solely on the lowest cost provider that brings no or little value and can only provide a 40%-50% approval ratio. This can hurt the relationship between the franchisor and the franchisee.
• Sales Channels & Networking: Industry associations continue to play an important role for branding and nurturing relationships. We have seen increased attendance at trade events and specific franchisor shows. These play an important role in the strategy to expand the concepts. Industry wide trade shows for franchise financing are important as well but developing a relationship with the corporate office and personnel of a concept is absolutely vital in developing effective finance programs.

A Positive Future for Franchising

Overall, the outlook is very positive for the franchise vertical in 2015. Finance companies that serve this market as well as any service or product provider to this industry should experience many successes in the coming year. Access to capital is expanding and Ascentium Capital is excited to participate in this industry, and we look forward the continued opportunities in this sector and across the United States.