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

hyperwave-exhausted.blogspot.com
“Historically, franchising as a business model has been extremely resilient toeconomic slowdowns, whicu has helped spur the pace of economicc recovery,” said Matthew Shay, president and CEO of the Internationaol Franchising Association, in a recent preszs release. “However, the credit cruncbh is constraining this potential growth and slowintgeconomic recovery.” According to LLP’s Franchise Businesxs Economic Outlook for 2009, in the years followint the burst of the dot-com bubbled in 2000, the number of franchisees increased on averagre by 5.6 percent per year througb 2005. But by 2008, when credit began to the pace slowedto 2.1 percent.
PricewaterhouseCooperse is further predicting that in 2009 the number of franchiseez will declineby 1.2 a net loss of some 10,000 establishments. Donald MacDonald, foundet of , a plumbing, draim and sewer cleaning franchise basedin Billerica, remains He said his franchise has grown steadily to more than 450 franchisee s since 1981. He says his franchise did not see any slowdow in franchising until this and he expects growth to continue whencredity eases. “People lost a lot of money in the market, so they’rew exploring their options,” he “There are a lot of people out therekicking tires, so we expect some (prospects) will be directecd into sales.
” However, the lendingh environment looks gloomy in the Bay Stated for franchisees, said Jim Coen, executive director of the and presidentt of the Dunkin’ Donuts Independent Franchisd Owners. “Banks are requiring a lot more skin in the said Coen. “Deals that could have been made two or even ayear ago, are not beinyg made today.” Coen said bankws that were looking for 15 percent down a few yeare ago are now looking for 30 percent to 40 perceny down and are requiring more nonbusiness asset s as collateral. “So there’s been a lot of franchising businessee that haveslowed down,” he But there are still financing options available.
“Wr identified that community bankws are more willing to lend in the lastsix months, so if you’re a franchise with a national brand, or just a strong that usually works well for a communithy bank,” Coen said. is another financingv source availablefor franchisees. Elizabet Moisuk, spokeswoman for the Massachusettsdistrict office, said about 15 franchisex have successfully applied for loans sincse September, and loan approvals for all smallo businesses are up 45 percent sincre the American Recovery and Reinvestmenf Act went into effect in February.
Coen, who has spen t over 25 years in thefranchising business, says pursuing a franchised opportunity in poor economic times makez sense for entrepreneurs becausr “there’s a successful business model to follow.” But he also cautionws that “not all franchises are worthy of your time and But obtaining financing and investing in a solid franchise is no guarantee of successz if entrepreneurs fall into the usual trapss that lead to business failures. “The challenge is that you’rw going into a recession, so you need enough resources to be able to last through it,” Coen said.