Small Business Franchises Face Lending Challenges

Franchises face finance challenges

Over 80,000 jobs and more than $10 billion in economic output could be lost in 2011 unless credit flow to franchised small businesses increases,  according to a new report by the International  Franchise Association.

The report found the 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 IFA President & CEO Steve Caldeira.

"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.

There are 3 Comments. Add Yours.
  1. Isn’t lending different depending on the organisations policy?

    Some lend to these types of business some dont

  2. Many franchises are great. They offer real opportunities for hard working people with enough business acumen to succeed.  However, some are not and have poor track records in ethics and business practices.  For free advice on the good and bad franchises visit http://www.cdicorp.info

  3. The franchise world is different when compared to buying a non-franchise business. When building out a new franchise or buying an existing franchise location, financing is much easier.

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