Pie franchise struggled with bank loan

The way banks deal with the franchise industry has come under the spotlight of the financial services royal commission.

Witness Marion Messih at the banking royal commission in Melbourne yesterday. Picture: Stuart McEvoy.

The way banks deal with the franchise industry has come under the spotlight of the financial services royal commission, with one former franchisee saying she went through “the worst time of my life” dealing with Westpac over loan repayments after her pie business went under.

The commission has also examined the case of a loan to set up an ice cream franchise business on the basis of optimistic sales targets and continued to hear evidence over a disastrous loan for a pool franchise that was guaranteed by a disability pensioner.

Bank executives faced questions about how they make loans to borrowers within the franchise system and about their willingness to lend higher sums to approved franchisees than to start-ups.

Counsel assisting the commission, Michael Hodge QC, also grilled bank executives over the fairness of their dealings with franchisees, particularly when small businesses failed.

The focus on franchises continued for a second day after blind disability pensioner Carolyn Flanagan on Monday told her story of going guarantor on a loan to her daughter to buy a pool franchise business.

Ms Flanagan faced losing her house when the business went south.

The commission yesterday heard evidence from Marion Messih, who took out a loan with Westpac to buy a franchise from doomed fast food chain Pie Face with her sister-in-law.

She said that although she was earlier a CBA customer she had to switch banks as Pie Face — which went into voluntary administration in 2014 — was accredited with Westpac.

“If we earned $500 in a week, it was a miracle,” Ms Messih said. “It was pretty woeful, to be quite honest. We were working 14 hours a day.”

Once the store was shut down Ms Messih repaid her loan by selling her investment property.

She had planned to pay back her share of the debt but the bank also took her sister-in-law’s debt, she said.

Her sister-in-law is now paying her back $120 a week.

Westpac also sent her weekly text messages asking for money towards a credit card bill.

“It was overwhelming and just stressful. It’s the worst time of my life,” Ms Messih said.

Meanwhile, ANZ’s Kate Gibson — currently general manager of home lending but previously in charge of small business banking — faced questions over a business plan for a gelato franchise where ANZ had provided a loan.

Despite the gelato kiosk being in a Westfield shopping centre, ANZ made the loan on the back of business plan that promised it would have “an intimate and sophisticated atmosphere”.

The language in the business plan appeared generic, with the ice cream kiosk pitched at both families with children and couples on dates, the commission heard.

Commissioner Kenneth Hayne wondered how many ice creams the business would have to sell in July — the depths of winter — to meet its sales targets.

Based on a 63 hour week and $7 an ice cream the business would have to sell about 23 ice creams per hour on average over the whole year, Ms Gibson said, and it would not be able to meet that mark in winter.