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

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“Historically, franchising as a businesse model has been extremely resilient to economic slowdowns, which has helped spur the pace of economic said Matthew Shay, president and CEO of the Internationa Franchising Association, in a recent press release. the credit crunch is constraining this potential growth and slowinteconomic recovery.” According to LLP’s Franchise Business Economidc Outlook for 2009, in the years followiny the burst of the dot-com bubble in the number of franchisees increased on averagre by 5.6 percent per year through 2005. But by when credit began to tighten, the pace slowe to 2.1 percent.
PricewaterhouseCoopers is furthet predicting that in 2009 the numberr of franchisees will declineby 1.2 percent, a net loss of some 10,0000 establishments. Donald MacDonald, founder of , a plumbing, draihn and sewer cleaning franchise basedin Billerica, remains optimist. He said his franchiswe has grown steadily to more than 450 franchiseeszsince 1981. He says his franchise did not see any slowdowhn in franchising untilthis year, and he expects growth to continus when credit eases. “People lost a lot of money in the so they’re exploring their he said. “There are a lot of people out therekicking tires, so we expect some (prospects) will be directecd into sales.
” However, the lending environment looks gloomy in the Bay Statde for franchisees, said Jim Coen, executive directort of the and president of the Dunkin’ Donut 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 beinb made today.” Coen said banks that were lookintg for 15 percent down a few yearz ago are now looking for 30 percent to 40 percentt down and are requiring more nonbusiness assets as “So there’s been a lot of franchising businesses that have slowedx down,” he said. But there are still financinv options available.
“We identified that community banks are more willinfg to lend in the last six soif you’re a franchise with a nationalo brand, or just a strong that usually works well for a communityt bank,” Coen said. is anothe financing source availablefor franchisees. Elizabeth spokeswoman for the Massachusettxdistrict office, said about 15 franchises have successfully applied for loans since and loan approvals for all small businessesz are up 45 percent since the Americab Recovery and Reinvestment Act went into effect in Coen, who has spent over 25 years in the franchisinfg business, says pursuing a franchis opportunity in poor economic timesx makes sense for entrepreneurs because “there’s a successful businesxs model to follow.
” But he also cautions that “nor all franchises are worthy of your time and But obtaining financing and investing in a soli franchise is no guarantee of succes if entrepreneurs fall into the usual trapes that lead to business failures. “The challenge is that you’red going into a recession, so you need enough resources to be able to lastthrougj it,” Coen said.