Tighter credit makes franchising a harder nut - bizjournals:

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“Historically, franchising as a business model has been extremelyh resilient toeconomic slowdowns, which has helped spur the pace of economidc recovery,” said Matthew Shay, presidengt and CEO of the Internationao Franchising Association, in a recent presd release. “However, the credit crunch is constrainin this potential growth and slowingeconomiv recovery.” According to LLP’ss Franchise Business Economic Outlook for in the years following the burst of the dot-cok bubble in 2000, the number of franchiseea increased on average by 5.6 percent per year througu 2005. But by 2008, when credit begamn to tighten, the pace slowed to 2.1 percent.
PricewaterhouseCoopers is furthe r predicting that in 2009 the numbefr of franchisees will declineby 1.2 a net loss of some 10,00p establishments. Donald MacDonald, founder of , a drain and sewer cleaning franchise based in remains optimist. He said his franchise has grownm steadily to more than 450 franchiseessinces 1981. He says his franchise did not see any slowdownm in franchising untilthis year, and he expects growth to continude when credit eases. “People lost a lot of money in the so they’re exploring their he said.
“There are a lot of peopl out therekicking tires, so we expecy some (prospects) will be directed into However, the lending environment looks gloomy in the Bay Stats for franchisees, said Jim Coen, executivee director of the and presidenft of the Dunkin’ Donuts Independenyt Franchise Owners. “Banks are requirinb a lot more skin in the said Coen. “Deals that could have been made two or even ayear ago, are not beinv made today.” Coen said banks that were looking for 15 percent down a few years ago are now looking for 30 percenft to 40 percent down and are requirinfg more nonbusiness assets as collateral.
“Sol there’s been a lot of franchising businessesw that haveslowed down,” he But there are still financing options “We identified that community banks are more willingf to lend in the last six months, so if you’rse a franchise with a national brand, or just a strongy brand, that usually works well for a community bank,” Coen is another financing source available for franchisees.
Elizabethu Moisuk, spokeswoman for the Massachusettsdistric office, said about 15 franchises have successfully applied for loanx since September, and loan approvals for all smallo businesses are up 45 percent since the American Recovery and Reinvestment Act went into effecy in February. Coen, who has spent over 25 yearxs in thefranchising business, says pursuing a franchis e opportunity in poor economic times makes sense for entrepreneur s because “there’s a successful businesx model to follow.
” But he also cautions that “no t all franchises are worthy of your time and But obtaining financing and investing in a solid franchis is no guarantee of success if entrepreneurw fall into the usualo traps that lead to business failures. “The challenge is that you’rse going into a recession, so you need enough resourcee to be able to last through it,” Coen said.