Franchising remains a resilient option for SMEs in 2026

As South Africa embraces the dawn of 2026, its ever-changing franchise landscape presents a beacon of opportunity for seasoned franchisees and novice entrepreneurs alike.

The franchise business model, which has seen continued evolution over the years, promises not only growth but also a stable entry point for small and medium enterprises (SMEs) grappling with the complexities of establishing a business in an unpredictable economy.

Franchising, contributing a remarkable estimated 15% to South Africa’s GDP, employs around 500,000 individuals across various sectors, including food, retail, and services.

In this challenging economic climate, these figures illustrate the considerable impact franchising continues to have on job creation and overall economic recovery.

According to the Franchise Association of South Africa, this sector is poised to play a pivotal role in revitalising the economy, particularly in the realms of youth employment and responsible scaling.

For many SMEs, franchising represents a lower-risk pathway into entrepreneurship, primarily because it substitutes the often perilous trial-and-error approach with established frameworks.

By leaning on proven operating models and recognised brands, franchisees benefit from substantial support systems that help mitigate execution risks.

Brent Downard, Head of Credit at Merchant Capital said that challenges do still remain, especially concerning financial management.

“A proven franchise model won’t protect a business from poor funding solutions. In 2026, successful franchise growth will depend on access to capital that supports cash flow realities, not one-size-fits-all lending solutions,” Downard said.

In this regard, traditional funding approaches often fail to meet the dynamic needs of franchise operations.

While financial institutions may regard franchises as a lower-risk venture due to their branded nature, the reality is that accessing capital remains frustratingly slow and inflexible.

The FinScope MSME South Africa 2024 report captured this dilemma, indicating a significant reliance among SMEs on internal funds or informal finance.

This trend can largely be attributed to the inaccessibility of suitable formal credit options. Rigid approval processes, onerous collateral requirements, and fixed repayment structures often do not reflect the realities of how franchise businesses actually trade, particularly during critical growth and reinvestment phases.

This funding challenge affects everyday decisions for franchise owners.

Some are compelled to delay important staffing or equipment upgrades that could enhance their growth trajectory, while others may expand too cautiously, missing crucial market opportunities. Additionally, some may overextend themselves, taking on too much, too soon.

The underlying issue often relates not to the franchise model itself but to the timing and structure of funding.

From a credit perspective, Downard emphasised that “sustainable franchising is less about speed and more about control. The businesses that perform well over time are usually those that use growth capital to expand in a measured way.”

This careful consideration becomes vital as franchisees contemplate expanding beyond their initial outlets, where complexities surrounding staffing, supply chains, and compliance emerge.

Such factors require substantial investments upfront before any returns can be realised.

Successful South African franchise operators exemplify how strategic growth can catalyse significant job creation, often well before operational efficiencies kick in.

However, this can only occur when the availability of capital aligns seamlessly with the realities of scaling. When funding sources are designed to suit operational realities, franchising can foster both resilience and long-term growth.

Merchant Capital stands at the forefront, partnering with SMEs, franchise operators, in securing growth capital for new outlets, refurbishments, and necessary upgrades.

Their provision of asset-free funding allows businesses to access capital swiftly, tailoring repayment to align with actual trading conditions, thereby avoiding fixed monthly commitments that fail to take seasonality into account.

BUSINESS REPORT