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The economy has yet to fully recover, but franchising is showing significant opportunities that don’t exist in
many other business segments.
Financing Challenges Remain for Franchises
BY ACCOUNTING TODAY STAFF, WASHINGTON, D.C. (MARCH 23, 2011)
Over 80,000 new jobs and over $10 billion in economic output could be lost in 2011 unless credit flow to franchised small businesses increases, according to a new report.
The report, The Small Business Lending Matrix and Analysis, Vol.
3, prepared by FRANdata for the International Franchise Association
Educational Foundation, shows demand for franchise business
growth in 2011 far outpaces the ability of franchise businesses to
access financing, despite a more positive business climate and
increased investor interest for franchise expansion.
“Franchising, due to its structure and demonstrable track record of
40 percent growth over the last decade, offers the most promising
vehicle to accelerate widespread job creation in this country,”
said International Franchise Association president and CEO Steve
Caldeira, in a statement. “Yet without sufficient financing, franchise
businesses will continue to struggle to become a true locomotive
for job creation, which it has been historically.”
The report says franchise businesses will require $10.4 billion in
new lending capital to fulfill 100 percent of the forecasted demand
for new and transfer units in 2011, but credit flow may fall short by
20 percent. The gap is a slight improvement over the estimated
gap of 23 percent in 2010 due to increased investor demand for
franchises, unconstrained franchisor capacity for growth, increased
lending by banks to franchises due to increases in the Small
Business Administration loan guarantees passed last year, and the
estimated pace of economic recovery through 2011 and beyond.
Even with the estimated shortfall in lending, the report estimates
that more than 33,000 franchises, both new units and transfers,
will create or maintain more than 250,800 jobs and generate $32.5
billion of annual economic output in 2011.
Lenders are faced with sharp declines in the value of borrower’s
collateral, a strict regulatory environment and long-lasting record-high unemployment rates. Many businesses have also faced
