What does the FUND score mean?
Similar to a FICO score on consumers, a FUND Score on franchise systems is used by banks to help them determine their willingness to make loans to a particular brand and, if so, to help banks structure and price individual loans. A total of 12 credit risk factors are evaluated for each brand. The resulting score informs a lender of the relative likelihood borrowers in a specific franchise system will meet the terms of the loan agreement.
The report details metrics that assist banks with the underwriting process for an individual loan, which enables a lender to determine the appropriate terms, including interest rates, and capital reserves for a specific franchise system.
For franchise systems with high scores, lenders are inclined to offer better lending terms to franchisees. For franchise systems with low scores, lender must rely more on borrower strength to compensate for weaker franchise system credit risks. Since the score is based on a consistently applied methodology and each franchise system is underwritten to this same standard, lender use of FUND Scores eliminates underwriting inconsistencies and interpretation issues.
FUND Scores have been applied to hundreds of franchise systems. Both quantitative and qualitative factors are applied on a consistent basis, providing valid perspective of what good and poor franchise performance looks like from a lender perspective.
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