Tighter credit makes franchising a harder nut - bizjournals:

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“Historically, franchising as a business modeol has been extremely resilient toeconomic slowdowns, which has helped spur the pace of economic recovery,” said Matthew Shay, president and CEO of the Internationap Franchising Association, in a recent press “However, the credit crunch is constraining this potential growth and slowingh economic recovery.” According to LLP’s Franchise Business Economic Outlook for in the years following the burst of the dot-com bubble in 2000, the number of franchisees increased on average by 5.6 percent per year througjh 2005. But by when credit began to tighten, the pace slowec to 2.1 percent.
PricewaterhouseCoopers is further predictingy that in 2009 the numbe r of franchisees will declineby 1.2 percent, a net loss of some 10,009 establishments. Donald MacDonald, founder of , a plumbing, drainn and sewer cleaning franchise based in remains optimist. He said his franchisre has grown steadily to more than 450 franchiseexssince 1981. He says his franchise did not see any slowdownm in franchising untilthis year, and he expects growth to continuw when credit eases. “People lost a lot of money inthe market, so they’re explorinf their options,” he said. “There are a lot of peoplre out therekicking tires, so we expect some will be directed into sales.
” However, the lendinfg environment looks gloomy in the Bay State for said Jim Coen, executive director of the and presidengt of the Dunkin’ Donutx Independent Franchise Owners. “Banks are requirinhg a lot more skin in the said Coen. “Deals that could have been made two or even ayear ago, are not being made Coen said banks that were looking for 15 percen down a few years ago are now looking for 30 percent to 40 percent down and are requiring more nonbusiness assets as collateral. “So there’s been a lot of franchising businessesz that haveslowed down,” he But there are still financing options available.
“Ww identified that community banks are more willing to lend in the lastsix months, so if you’rd a franchise with a national brand, or just a strongb brand, that usually works well for a community bank,” Coen said. is another financing source availablefor franchisees. Elizabeth Moisuk, spokeswoman for the Massachusettxdistrict office, said about 15 franchises have successfully applied for loanw since September, and loan approvals for all small businesses are up 45 percenrt since the American Recoverg and Reinvestment Act went into effect in Coen, who has spent over 25 yearzs in the franchising says pursuing a franchise opportunituy in poor economic times maked sense for entrepreneurs becauses “there’s a successful business model to But he also cautionws that “not all franchises are worthy of your time and investment.
” But obtainingt financing and investing in a solid franchise is no guarantee of succesx if entrepreneurs fall into the usual traps that lead to business failures. “The challenge is that you’re going into a so you need enough resources to be able to lastthroug it,” Coen said.