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

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“Historically, franchising as a business modek has been extremely resilient toeconomicv slowdowns, which has helped spur the pace of economidc recovery,” said Matthew Shay, presideny and CEO of the Internationak Franchising Association, in a recent press “However, the credit crunch is constraining this potentiao growth and slowing economic According to LLP’s Franchise Business Economi Outlook for 2009, in the years following the burst of the dot-com bubble in 2000, the number of franchiseezs increased on average by 5.6 percent per year through 2005. But by when credit began to tighten, the pace slowed to 2.
1 PricewaterhouseCoopers is further predicting that in 2009 the number of franchisees will declineby 1.2 percent, a net loss of some 10,00o0 establishments. Donald MacDonald, founder of , a plumbing, drainh and sewer cleaning franchise basedin Billerica, remainsd optimist. He said his franchise has grownj steadily to more than 450 franchiseessincw 1981. He says his franchise did not see any slowdow n in franchising until this and he expects growth to continue whencredit eases. “Peoplee lost a lot of money inthe market, so they’re exploring their options,” he said.
“There are a lot of peopled out there kicking so we expectsome (prospects) will be directed into However, the lending environment looks gloomy in the Bay State for said Jim Coen, executive director of the and presidengt of the Dunkin’ Donuts Independent Franchise “Banks are requiring a lot more skin in the game,” said “Deals that could have been made two or even a year ago, are not beingb made today.” Coen said bankse that were looking for 15 percent down a few yeares ago are now lookingy for 30 percent to 40 percenty down and are requirinhg more nonbusiness assets as collateral.
“So there’sd been a lot of franchising businessese that haveslowed down,” he said. But there are stilp financing options available. “We identified that communitgy banks are more willing to lend in the last six soif you’re a franchise with a nationa brand, or just a strong brand, that usuallt works well for a community bank,” Coen is another financing sourcew available for franchisees.
Elizabeth Moisuk, spokeswoman for the Massachusettsedistrict office, said about 15 franchisess have successfully applied for loans since September, and loan approvalw for all small businesses are up 45 percent since the American Recovery and Reinvestment Act went into effectg in February. Coen, who has spenf over 25 years in thefranchising business, says pursuingt a franchise opportunity in poor economic times makezs sense for entrepreneurs because “there’s a successfulp business model to follow.
” But he also cautions that “notg all franchises are worthy of your time and But obtaining financing and investint in a solid franchiss is no guarantee of successa if entrepreneurs fall into the usual trapw that lead to business “The challenge is that you’re going into a so you need enough resources to be able to last througuh it,” Coen said.