Print
Get the Mag
Weekly UpdatesMost important, recessions produce a great amount of dedicated and intelligent executives who have been laid off from corporate America. With their idea of security in large companies shattered, these corporate executives take their future into their own hands, and many start their own businesses. Franchises tend to attract those who have been discarded by large companies because they offer training, guidance, support and connections and provide an excellent foundation for people wanting to start their own businesses.
But as the lending institutions continue to tighten their qualifications, it has become difficult for entrepreneurs to obtain financing to start their own businesses. In the past, franchisees were able to get business loans and or pull cash out of their real estate. When home values drop and income requirements become stricter, it seems the only people who can borrow money are people who don't need to.
How is limited access to financing affecting the franchise industry? "The credit crunch is constraining this potential growth and slowing economic recovery," says Matthew Shay, president and CEO of the International Franchising Association, in a recent press release.
I have spoken to many people who can't open their business because their credit lines have been slashed or closed or others who can't refinance their homes because of lending restrictions. SBA has also tightened its belt, and loans are just not available to many first-time business owners. The lack of available financing is not just hurting the franchise industry but the economy as a whole. Many people are waiting for the government or big companies to end the recession, but it will be small business that pulls us out. Small businesses are job creators. Data and research funded by the Office of Advocacy shows that small businesses represent 99.7 percent of all firms. They create more than half of the private non-farm gross domestic product and 60 percent to 80 percent of the net new jobs.
According to PricewaterhouseCoopers Franchise Business Economic Outlook for 2009, in the years following the burst of the dotcom bubble in 2000, the number of franchisees increased on average by 5.6 percent per year through 2005. But by 2008, when credit began to tighten, the pace slowed to 2.1 percent. PricewaterhouseCoopers is predicting that in 2009 the number of franchisees will decline by 1.2 percent, a net loss of some 10,000 establishments.
But there is always a silver lining. If you are looking for funds to finance your business, I suggest you speak to a professional who can explain what you can qualify for. If you do not already have a relationship established with a business broker, I suggest you start this process by contacting Harry Barnes with Capital Idea Group.
If loans won't work for your situation, grants and loans from friends or family might be possible. Don't give up--and remember, if opening your own business were easy, everyone would do it!
RSS
Leave a comment