Finance

Lending to Franchises Reaches the Highest Level Since the Recession

Senior Entrepreneurship Writer at CNBC

April 9, 2013 2 min read

Banks are coming back to the table to work with franchise businesses, but not fast enough, according to a new report released today by the Washington, D.C.-based International Franchise Association, a franchise-industry advocacy organization.

Banks are expected to make $23.9 billion available to franchise businesses in 2013, the report says, the highest level since 2009. The loans are projected to support 59,300 franchise businesses.

Of the projected capital, the report predicts that $5.6 billion in loans will come from the Small Business Administration's loan programs, which guarantee as much as 80 percent of the loan principal for a bank. Another $18.3 billion will come in the form of conventional bank loans.

Access to capital for franchise businesses impacts the overall health of the U.S. economy. According to the report, new and existing franchise units are expected to employ nearly 800,000 people and produce $106 billion in sales in 2013.

While it’s welcome news that banks plan to make more loans to franchises, current and potential franchise owners are expected to need $26.5 billion in capital this year to fund current business operations or launch new franchise units, leaving a shortfall of $2.6 billion, the report says.

If the franchise industry had access to all the capital it seeks, the report estimates another 6,400 franchise businesses would be launched and another 85,900 jobs would be created or protected from layoffs in the U.S. in 2013.

The report, the Small Business Lending Matrix and Analysis, was prepared for the IFA by FRANdata, a franchise-industry market research firm, using data from the SBA, other government sources and state franchise examiners.

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