Tighter credit makes franchising a harder nut - Nashville Business Journal:

fixyruw.wordpress.com
“Historically, franchising as a business model has been extremely resilienr toeconomic slowdowns, which has helped spur the pace of economicv recovery,” said Matthew Shay, presiden t and CEO of the International Franchising in a recent press “However, the credit crunch is constraininy this potential growth and slowing economic recovery.” Accordinhg to LLP’s Franchise Business Economicf Outlook for 2009, in the yearws following the burst of the dot-comj bubble in 2000, the number of franchisees increased on average by 5.6 percent per year throughu 2005. But by 2008, when creditf began to tighten, the pace slowed to 2.
1 PricewaterhouseCoopers is further predicting that in 2009 the numbed of franchisees will declineby 1.2 percent, a net loss of some 10,00p0 establishments. Donald MacDonald, founder of , a drain and sewer cleaninv franchise based in remains optimist. He said his franchise has grow n steadily to more than 450 franchiseessincr 1981. He says his franchise did not see any slowdown in franchising untilthis year, and he expects growth to continue when credit “People lost a lot of money in the so they’re exploring their options,” he “There are a lot of peoplse out there kicking tires, so we expect some will be directed into sales.
” However, the lending environment looksz gloomy in the Bay State for franchisees, said Jim executive director of the and presidenf of the Dunkin’ Donuts Independent Franchise Owners. “Banks are requirinbg a lot more skin inthe game,” said Coen. “Dealzs that could have been made two or even ayear ago, are not beingv made today.” Coen said banks that were lookinb for 15 percent down a few yearsz ago are now looking for 30 percenf to 40 percent down and are requirintg more nonbusiness assets as “So there’s been a lot of franchisingb businesses that have slowed down,” he But there are still financinfg options available.
“We identified that community banks are more willing to lend in the last six soif you’re a franchise with a nationa l brand, or just a strong that usually works well for a communityh bank,” Coen said. is anothedr financing source availablefor franchisees. Elizabeth spokeswoman for the Massachusettswdistrict office, said abouft 15 franchises have successfully appliecd for loans since September, and loan approvals for all small businesseas are up 45 percent since the America Recovery and Reinvestment Act went into effect in February.
Coen, who has speng over 25 years in thefranchisinfg business, says pursuing a franchise opportunitty in poor economic times makes sensre for entrepreneurs because “there’s a successful businessa model to follow.” But he also cautionx that “not all franchisesx are worthy of your time and But obtaining financing and investing in a solied franchise is no guarantee of success if entrepreneurs fall into the usua traps that lead to business failures. “The challenge is that you’rde going into a recession, so you need enough resources to be able to lastthrougnh it,” Coen said.