In today’s economy, landlords and lenders are looking very cautiously at the types of businesses and individuals acquiring a business opportunity prior to lending money or accepting a tenant. The experience of failure among businesses in the last several years has made both lenders and landlords quite nervous. However, both lenders and landlords are favoring franchisees over independent business owners. Franchisees are seen as less risky for a number of reasons. Landlords perceive that brand recognition of franchisees will bring in more traffic to both the particular store, as well as the entire shopping center. Lenders determine that brand recognition will likely bring in more business and make the franchisee stronger than an independent business owner. The support and training that a franchisee receives from the franchisor, as well as the brand recognition makes both lending and leasing to franchisees seem less risky then independent business owners.
As a result of this perception and, perhaps, reality, many independent business owners (mom and pop stores) are deciding to convert their businesses to being part of a franchised system. For example, an independent tutoring business may decide that the support, training and brand recognition, as well as the access to products and supplies at preferred rates of a tutoring franchise, may bring in more students and provide greater strength in borrowing funds for the business and finding a good location for the business. An independent massage studio may find it advantageous for many reasons to align with an established massage franchise system.
Both lenders and landlords find the strength, brand recognition, support and training that a franchisee receives from a franchise lessens the risks to landlords and lenders. Is this perception accurate? Further studies of the financial strength of independent business owners versus franchisees needs to be completed. Reliance on old assumptions and old statistics are no longer valid and new data needs to be compiled.
The information provided in this article is not intended to be legal advice and does not create an attorney/client relationship. Many factors contribute to providing legal advice, including the specific facts of a situation.