Improvements in Franchise Financing – December 2010

SMALL IMPROVEMENTS IN FINANCING TO SPUR FRANCHISE SALES BOOM

After a Lengthy Credit-Crunch, iFranchise Group and Franchise Dynamics Executives Expect Pent-Up Demand to Fuel Franchise Sales Explosion
as Credit Loosens in the New Year

December, 2010: HOMEWOOD, IL – The iFranchise Group, a leading franchise consulting firm based near Chicago, and its strategic partner company, Franchise Dynamics, which provides outsourced franchise sales services, are predicting a slow-paced loosening of credit for franchise systems and franchise buyers in the coming months. This comes on the heels of a protracted period, dating back to the early days of the recession, where funding has been extremely difficult to obtain, even for highly-qualified borrowers.

The franchising sector has not been immune to the challenges faced by home-buyers and sellers and small business owners: banks and other lenders, burned during the financial meltdown of 2008, had tightened the reins on just about all lending.

“Historically,” says iFranchise Group CEO, Mark Siebert, “One could reasonably assume that obtaining a loan to purchase a franchise would be a simple process, merely by demonstrating an interest in the business, some collateral, a decent credit score, and a minimal amount of liquid capital. When the banking and housing crisis became the new reality, things changed.” Demand for franchises, however, continues to grow as unemployment remains high. “With all of the pent-up demand created by the continued unemployment situation, even a small change in loan availability will likely create a huge positive impact on franchise sales.”

As a result of the recent difficulties in obtaining financing, some larger franchisors, in the foodservice sector in particular, have raised the requirements for franchise buyers, expecting them to have prior industry and business-ownership experience, and greater pools of liquid capital, in order to be considered for entry into their systems. Even experienced multi-unit owners and franchisors have found it challenging to obtain funding from traditional sources when they look to open additional franchise units or divest themselves of corporate units to convert to franchises.

But signs point to change on the horizon. The Small Business Jobs Act, passed earlier this Fall, included a pool of $30 billion in low-cost capital available for small business lending. The Act also stipulated enhanced SBA loan provisions – such as the elimination of guarantee fees, reduced the fees charged to lenders, and increased guarantee levels offered — as well lending support, tax cuts, and other opportunities for entrepreneurs and small business owners. The Treasury Department also announced $1.5 billion in funding to the State Small Business Credit Initiative, under which states partner with local lenders to extend credit to small businesses.

According to Robert Stidham, President of Franchise Dynamics, “At this point, we still see most loans being done by community banks and credit unions, plus we see more investors or investment groups funding franchise sales. Many banks want to lend, but lending standards and required documentation remain stringent. We are already seeing some indications that access to financing is improving, and our clients have seen it as well.” Stidham predicts that 2011 will be a banner year for franchise sales. “We had a record year in 2010 despite the lack of available financing. As capital availability improves, we expect that franchise systems will be the big beneficiary.”

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 About iFranchise Group: iFranchise Group, is a leading franchise consulting firm that offers the skills of the nation’s top professionals in franchise strategic planning, operations training and documentation, franchise marketing and sales, advertising fund management, franchise recruitment, and development of Internet-based applications for emerging and established franchise companies worldwide.

 

About Franchise Dynamics: Franchise Dynamics (www.franchisedynamics.net), is the nation’s first full-service franchise sales outsourcing firm. Franchise Dynamics provides a complete solution for its clients’ franchise sales needs. Full cycle franchise sales outsourcing services include providing dedicated sales staff, franchise marketing input, initial lead handling, materials distribution, preliminary qualification, FDD disclosure, “discovery day” presentation, document management and both pre- and post-franchise sales closing support.