Franchisor's Incentives Are Turning Prospects Into Franchisees

Finance solutions

"These are incredibly unique times," says Glenn Franson, CEO of San Antonio, Tex.-based Massage Heights. "I've talked to other franchisors and some of us are seeing lead flow down by as much as 80 percent." One of the fundamental reasons, he says, is prospects' inability to obtain bank loans to cover the franchise startup costs.

The company's response has been to get actively involved and speed up the financing process any way it can, says Franson. "We want to help qualified franchisees get the capital they need to get started in business."

One way of doing that was to list Massage Heights on the SBA Franchise Registry. "Only a handful of franchisors qualify for this, and it makes it so easy for lenders to check you out as a company," says Franson.

Late last year, Massage Heights created a special finance steering committee composed of both corporate officers and regional developers with backgrounds in finance and lending. The group meets biweekly to discuss ways to improve and streamline the financing process for Massage Heights prospects. One of their first tasks, says Franson, was to begin identifying and building relationships with banks that were interested in lending money.

"We discovered the Coleman Report, which is packed with news concerning banking, financing, government, and SBA lenders," he says. "We've been contacting those banks and trying to build rapport."

Franson says one of the things he's discovered is that many banks are looking to really get to know the people they are lending to, and the Massage Heights team is doing everything it can to help make that easier. For example, regional developers on the ground throughout the country are working to build relationships with local and regional banks. As a show of good faith to its developers, Massage Heights relaxed requirements on development schedules for its regional developers because of today's lengthier loan approval process.

As an added incentive to candidates, if a new qualified franchisee can't secure funding within 18 months of signing the franchise agreement, Massage Heights will refund the franchise fee (as much as $42,000 for franchises purchased after April 1, 2009 and disclosed in the 2009 FDD).

The company is aggressively trying several other techniques. Franson says the company is being flexible in negotiations with prospects that could be great franchisees by allowing them to have lower liquid assets and net worth in exchange for building smaller spaces with fewer frills.

Cash is king, and Massage Heights recognizes that with a special plan to boost the cash flow of new franchisees by buying their annual customer contracts (at a small discount), immediately pumping cash into the franchisee's books.