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Franchising: Think Small, Earn Big

These days a franchise can be bought and opened for half the price of a Japanese car. The return on investment is between six months and a year.

“In franchising, you sell a business model with a proven track record and the systems that go with it. The success rate for franchises is 65% while the success rate for independents is 12%”, said Association of Filipino Franchisers, Inc. president Pacita Juan.

The majority of the 50 participants are in the food business. Non-food franchiser-exhibitors include those in the laundry, nursery school and IT businesses. There’s also a section for start-ups or small businesses without a franchising program but which would like to get a feel of the market and gain confidence.

“The start-up is a litmus test. If a start up can get 100 inquiries on franchising, that a good sign that maybe the business should take the next logical step,” said Juan who co-founded Figaro Coffee Company.

Young Group

AFFI started out four years ago as the First Filipino Franchise Federation. It changed its name to AFFI last year after it cleaned its membership list of absentees.

“One of our come-ons for membership is the support group or guerilla networking. It’s important that the entrepreneur – and not the business development manager – attends our monthly meeting. We discuss real problems that small businesses face and, because we’re all the same level in terms of size, we’re not shy about asking for help from each other,” said Juan.

Just recently, AFFI was accredited by the Small Business Guarantee Loan Fund for a loan facility that would allow potential franchisees to borrow money without collateral. The AFFI member is the co-signatory of the borrower, who must first present a certification that he/she tried to borrow from a bank and was turned down because he/she didn’t have enough collateral.

SBGFC will lend up to 80% of the investment cost, after the franchise fee is deducted. The franchisee has to shoulder the one-time upfront franchise fee, which starts at P100,000 for franchiser-members of AFFI. Assuming the investment cost of the property and the equipment adds up to P300,000, the would-be franchisee can borrow up to P240,000 from SBGFC at an interest rate of 3% over the treasury bill rate. The would-be franchisee would have to raise the balance of P60,000 (plus the franchise fee) on his own.

The first tranche of the SBGLF facility is P100 million, of which P10 million will be allocated to each qualified franchiser. Since they have small investment costs, AFFI members will be able to co-sign with more would be franchisees.

“The co-signatory provision shows the level of confidence AFFI members have in their businesses. If the franchisee defaults on his SBGFC loan, the AFFI member will have to take over the franchisee’s outlet and make it viable so he can pay the loan. For us, repaying the loan is a sure thing,” said Juan. -MJGrey