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

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“Historically, franchising as a business model has been extremely resilient toeconomic slowdowns, whichy has helped spur the pace of economidc recovery,” said Matthew Shay, president and CEO of the Internationap Franchising Association, in a recent press release. “However, the creditt crunch is constraining this potentiall growth and slowingeconomic recovery.” According to LLP’z Franchise Business Economic Outlook for in the years following the burst of the dot-com bubble in 2000, the number of franchiseea increased on average by 5.6 percent per year through 2005. But by 2008, when credity began to tighten, the pace slowed to 2.
1 PricewaterhouseCoopers is further predicting that in 2009 the number of franchiseesw will declineby 1.2 percent, a net loss of some 10,0000 establishments. Donald MacDonald, founder of , a drain and sewer cleaning franchise basedin Billerica, remains He said his franchise has grown steadilhy to more than 450 franchisees since 1981. He says his franchisd did not see any slowdow n in franchising until this and he expects growth to continue whencredigt eases. “People lost a lot of monety inthe market, so they’re explorinbg their options,” he said. “There are a lot of people out therewkicking 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 president of the Donuts Independent Franchise 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 being made today.” Coen said bankse that were looking for 15 percent down a few years ago are now lookinfg for 30 percent to 40 percent down and are requiringv more nonbusiness assets as collateral. “So there’s been a lot of franchisinfg businesses that haveslowed down,” he But there are still financing options available.
“Wew identified that community banks are more willing to lend in the last six soif you’re a franchise with a nationall brand, or just a strong brand, that usuall works well for a community bank,” Coen said. is anotherd financing source availablefor franchisees. Elizabeth Moisuk, spokeswomabn for the Massachusettsdistrict office, said abouf 15 franchises have successfully applied for loans since and loan approvals for all small businesses are up 45 perceng since the American Recovery and Reinvestment Act went into effecy in February.
Coen, who has spenrt over 25 years in thefranchising business, says pursuin a franchise opportunity in poor economixc times makes sense for entrepreneurs because “there’s a successful business model to But he also cautions that “not all franchisese are worthy of your time and investment.” But obtainin financing and investing in a solid franchise is no guarantee of success if entrepreneurs fall into the usual trapes that lead to business “The challenge is that you’rr going into a recession, so you need enough resources to be able to last throughh it,” Coen said.