Report Illustrates Financing Challenges Still Remain for Franchise Small Businesses

Washington (PRESS RELEASE – March 23, 2011) – Over 80,000 new jobs and over $10 billion in economic output could be lost in 2011 unless credit flow to franchised small businesses increases, according to a new report released by the International Franchise Association.

The Small Business Lending Matrix and Analysis, Vol. 3, prepared by FRANdata for the IFA Educational Foundation, shows demand for franchise business growth in 2011 far outpaces the ability of franchise businesses to access financing, despite a more positive business climate and increased investor interest for franchise expansion.

“Franchising, due to its structure and demonstrable track record of 40 percent growth over the last decade, offers the most promising vehicle to accelerate widespread job creation in this country,” said IFA President & CEO Steve Caldeira. “Yet without sufficient financing, franchise businesses will continue to struggle to become a true locomotive for job creation, which it has been historically.”

The report says franchise businesses will require $10.4 billion in new lending capital to fulfill 100 percent of the forecasted demand for new and transfer units in 2011, but credit flow may fall short by 20 percent. The gap is a slight improvement over the estimated gap of 23 percent in 2010 due to increased investor demand for franchises, unconstrained franchisor capacity for growth, increased lending by banks to franchises due to increases in the Small Business Administration loan guarantees passed last year, and the estimated pace of economic recovery through 2011 and beyond.

Even with the estimated shortfall in lending, the report estimates that more than 33,000 franchises, both new units and transfers, will create or maintain more than 250,800 jobs and generate $32.5 billion of annual economic output in 2011.

Lenders are faced with sharp declines in the value of borrower’s collateral, a strict regulatory environment and long-lasting record-high unemployment rates. Many businesses have also faced declines in sales volume, forcing them to operate at less profitable margins.

To address these challenges, IFA has partnered with the Consumer Bankers Association, CIT Group, the National Association of Government Guaranteed Lenders, the National Restaurant Association and others to develop solutions that increase credit flow to small franchise businesses. The organizations will co-host a Small Business Lending Summit Thursday, April 7, 2011, in Washington, D.C., to identify solutions to enable increased lending to small franchised businesses and speed up the economic recovery.

Featured speakers include experts in lending and small business, as well as Don Graves, Treasury Department deputy assistant secretary for Small Business, Housing & Community Development and the new executive director of President Obama’s Jobs Council, Senate Small Business & Entrepreneurship Committee Chairman Sen. Mary Landrieu, (D-LA), and Steve Moore, senior economics writer and Editorial Board Member at the Wall Street Journal.

Summit alliance partners include GE Franchise Capital, Dunkin’ Brands, Inc. (Dunkin’ Donuts/Baskin-Robbins), DineEquity, Inc. (Applebee’s & IHOP), The Bancorp Bank, Choice Hotels International and others in the small business and financial services communities.

“The Consumer Bankers Association and our member banks recognize small businesses are a key driver in the recovery and growth of our economy,” said CBA President, Richard Hunt. “Banks stand ready to lend but are just beginning to see an increase in demand. We are encouraged by recent policies to spur new lending and are looking forward to working with IFA, NAGGL and other organizations toward this common goal.” The Consumer Bankers Association is an anchor sponsor of the event.

“There is a direct correlation between access to credit and job creation,” said Tony Wilkinson, president & CEO of the National Association of Government Guaranteed Lenders, an anchor sponsor of the Summit. “Our nation’s small business lenders can, should and will play an important role in providing the credit that fuels the economic and jobs recovery the country needs.”

“CIT has a long history of supporting small businesses and the franchise industry,” said Chris Reilly, president of CIT Small Business Lending, an anchor sponsor of the Summit.  “We look forward to participating in the Summit and exploring ways to better serve this segment that remains vital to improving the U.S. economy.”

“Access to credit remains one of the top priorities for the restaurant industry,” said National Restaurant Association President and CEO Dawn Sweeney. “We look forward to working with lenders and government regulators at this summit to find solutions that will help drive small business franchise growth.” The National Restaurant Association is an anchor sponsor of the Summit.

In advance of the summit, the IFA will release a white paper demonstrating the direct correlation between financing of small franchise businesses and accelerated job creation.

“The nation’s 825,000 franchise businesses generate $2.1 trillion, or 9 percent of nonfarm economic output, and support nearly 18 million jobs for American workers, one out of every eight jobs,” said Caldeira. “Franchising, if properly financed, can be a catalyst to turn the U.S. economic recovery into a jobs recovery. For every $1 million of lending obtained by franchise small businesses, 34 jobs are created and $3.6 million in annual economic output is realized. We are hopeful that the Small Business Lending Summit will identify solutions to get credit flowing again so franchise businesses can continue to create jobs and economic output in communities across the country.”

About the International Franchise Association

The International Franchise Association is the world’s oldest and largest organization representing franchising worldwide. Celebrating 50 years of excellence, education and advocacy, IFA protects, enhances and promotes franchising through government relations, public relations and educational programs. Through its awareness campaign highlighting the theme, Franchising: Building Local Businesses, One Opportunity at a Time, IFA promotes the nearly 18 million jobs and $2.1 trillion of economic activity generated by franchising. IFA members include franchise companies in over 90 different business format categories, individual franchisees and companies that support the industry in marketing, law and business development.

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