Tighter credit makes franchising a harder nut - bizjournals:

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“Historically, franchising as a business modelp has been extremely resilient to economic which has helped spur the pace ofeconomic recovery,” said Mattheaw Shay, president and CEO of the International Franchising in a recent press release. “However, the credit crunchh is constraining this potential growth and slowinvgeconomic recovery.” According to LLP’s Franchise Businesw Economic Outlook for 2009, in the years following the bursg of the dot-com bubbls in 2000, the number of franchiseesw increased on average by 5.6 percentt 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 numbe r of franchisees will declineby 1.2 percent, a net loss of some 10,00p establishments. Donald MacDonald, founder of , a plumbing, drain and sewert cleaning franchise basedin Billerica, remainse optimist. He said his franchise has grownh steadily to more than 450 franchiseessince 1981. He says his franchisr did not see any slowdownh in franchising untilthis year, and he expects growtgh to continue when credit eases. “Peopld lost a lot of money in the market, so they’rd exploring their options,” he said.
“Theres are a lot of people out therekickingb tires, so we expect some (prospects) will be directedx into sales.” However, the lending environment looks gloomy in the Bay Statwe for franchisees, said Jim executive director of the and president of the Dunkin’ Donuts Independent Franchise “Banks are requiring a lot more skin in the said Coen. “Deals that could have been madetwo years, or even a year ago, are not beingb made today.” Coen said banks that were lookin for 15 percent down a few yeare ago are now looking for 30 percent to 40 percenf down and are requiring more nonbusiness assetz as collateral.
“So there’ds been a lot of franchising businesses that haveslowed down,” he But there are still financing options available. “W e identified that community bank are more willing to lend in the last six soif you’re a franchise with a national brand, or just a stronv brand, that usually works well for a community bank,” Coen is another financing source availablde for franchisees.
Elizabeth Moisuk, spokeswoman for the Massachusettsdistrictt office, said about 15 franchises have successfully appliec for loans since September, and loan approvalz for all small businesses are up 45 percent since the Americam Recovery and Reinvestment Act went into effect in Coen, who has speng over 25 years in the franchising says pursuing a franchise opportunity in poor economicc times makes sense for entrepreneurs becausr “there’s a successful business model to follow.
” But he also cautionzs that “not all franchisees are worthy of your time and But obtaining financing and investing in a solid franchisre is no guarantee of succese if entrepreneurs fall into the usual trapds that lead to business failures. “Th challenge is that you’re going into a so you need enough resources to be able to last through Coen said.