Franchise Financing: What A Lender Is Looking For? Part 2: Franchisee Review

Posted by Katey Wibbenmeyer on January 24, 2024

Katey Wibbenmeyer

Franchising presents entrepreneurs with an incredible opportunity to tap into well-established business models while also benefiting from the support and recognition of an established brand. However, for franchisees who are already busy managing their operations and striving to maximize profitability and cash flow, securing financing can be an overwhelming task. At Osgood Bank, we understand the specific challenges faced by franchisees, and our primary objective is to simplify and streamline the financing process. In this blog post, we will shed light on the key factors lenders consider and assess when assisting franchisees in securing the necessary funding.

Having already covered the franchisor review in Step 1, let's now shift our focus to the franchisee review.

The Five C's of Credit

The five C's of credit play a crucial role in determining whether a franchisee is eligible for financing. Lenders carefully evaluate these factors to assess the franchisee's creditworthiness and ability to repay the loan.

1. Character15

This refers to the franchisee's personal integrity, reputation, and track record. Lenders want to ensure that the franchisee has a history of responsible financial behavior and ethical business practices. They may review the franchisee's credit history, professional references, and even conduct background checks to gauge their character.

2. Capacity

Capacity refers to the franchisee's ability to generate sufficient cash flow to repay the loan. Lenders assess the franchisee's financial statements, including income statements, balance sheets, and cash flow projections, to determine if they have the capacity to meet loan obligations. They consider factors such as the franchisee's revenue, expenses, and profitability.

3. Capital

Capital refers to the franchisee's investment in the business. Lenders want to see that the franchisee has a significant stake in the venture, which demonstrates their commitment and reduces the lender's risk. They assess the franchisee's personal investment, including their own savings, assets, and equity, to determine if they have enough capital to support the business.

4. Collateral

Collateral is any asset that the franchisee pledges as security for the loan. It serves as a backup repayment source for the lender in case the franchisee defaults. Lenders evaluate the value and marketability of collateral, such as real estate, equipment, or inventory, to determine its suitability as security. Having valuable collateral can improve the franchisee's chances of securing financing.

5. Conditions

Conditions refer to the overall economic, industry, and market conditions that can impact the franchisee's ability to repay the loan. Lenders consider factors like the franchise's industry outlook, competition, market trends, and the overall health of the economy. They want to ensure that the franchisee operates in a favorable environment that supports business growth and profitability.


TK, KW & the Wilsons TH Opening ColumbusAdditional Considerations

In addition to the 5 C's of credit, lenders  must also consider other factors that are specific to the franchisee. Here are a few noteworthy examples:


What is the performance of your individual store compared to other franchisees in your brand and the overall performance of other brands? We rely on data from your brand's Franchise Disclosure Document (FDD) as well as external publications like National Restaurant News to evaluate and benchmark your performance.

Franchise Brand Consultants

We analyze reports compiled by franchise brand consultants, who are employed by the franchisor or independent third parties. These consultants conduct thorough assessments of store operations, regularly communicate with franchisees, and provide invaluable insights. During their visits, they meticulously review the franchisee's location and assign various scores that assess the overall performance. As we review these scores, we gain a comprehensive understanding of the operation's strength and the borrower's potential. 

Multi-Unit OwnersCampbells - San Diego

Multi-unit owners are highly favored by lenders due to their ability to generate multiple income streams, which helps them diversify their risk. Unforeseen events such as road closures can occur, but having multiple locations enables them to mitigate the impact of such unexpected situations.

Cash Position

Maintaining sufficient cash reserves is always beneficial. However, we understand that as franchisees expand their locations, their cash position may become stretched. Therefore, we strive to strike a balance in the required down payment. It is worth noting that the franchisor has their own set of minimum requirements for liquidity and net worth, which typically align with our underwriting standards.


Franchisees with a diverse background in multiple brands bring invaluable experience to the table. Drawing from their past ventures, they possess an acute understanding of the essential infrastructure required for expanding from a handful of locations to a network of many. Franchisors often emphasize that franchisees who are prepared for growth should have prior expertise in areas such as construction, finance, and operations.


At Osgood Bank, we strive to strike the right balance between supporting franchisees' financial needs and mitigating risk. Our experienced team works closely with franchisees, offering tailored financing solutions with long terms and competitive rates. We understand that franchisees are focused on running their operations and maximizing profitability, which is why we aim to make the financing process as efficient and convenient as possible.

If you are a franchisee seeking financing, Osgood Bank is here to assist you. Contact us today to discuss your financing needs and experience the difference of working with a lender that understands the unique challenges of the franchise industry. Together, we can help you achieve your goals and drive the success of your franchise.

Meet With a Franchise Financing Expert

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Topics: Business Finance, Franchise Finance

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