Over 80,000 new jobs and over $10 billion in economic output could be lost in 2011 unless credit flow to franchised small businesses increases, according to a new report.
The report, The Small Business Lending Matrix and Analysis, Vol. 3 , prepared by FRANdata for the International Franchise Association Educational Foundation, shows demand for franchise business growth in 2011 far outpaces the ability of franchise businesses to access financing, despite a more positive business climate and increased investor interest for franchise expansion.
"Franchising, due to its structure and demonstrable track record of 40 percent growth over the last decade, offers the most promising vehicle to accelerate widespread job creation in this country," said International Franchise Association president and CEO Steve Caldeira, in a statement. "Yet without sufficient financing, franchise businesses will continue to struggle to become a true locomotive for job creation, which it has been historically."
The report says franchise businesses will require $10.4 billion in new lending capital to fulfill 100 percent of the forecasted demand for new and transfer units in 2011, but credit flow may fall short by 20 percent. The gap is a slight improvement over the estimated gap of 23 percent in 2010 due to increased investor demand for franchises, unconstrained franchisor capacity for growth, increased lending by banks to franchises due to increases in the Small Business Administration loan guarantees passed last year, and the estimated pace of economic recovery through 2011 and beyond.
Even with the estimated shortfall in lending, the report estimates that more than 33,000 franchises, both new units and transfers, will create or maintain more than 250,800 jobs and generate $32.5 billion of annual economic output in 2011.
Lenders are faced with sharp declines in the value of borrower's collateral, a strict regulatory environment and long-lasting record-high unemployment rates. Many businesses have also faced declines in sales volume, forcing them to operate at less profitable margins.
To address these challenges, the IFA has partnered with the Consumer Bankers Association, CIT Group, the National Association of Government Guaranteed Lenders, the National Restaurant Association and others to develop solutions that increase credit flow to small franchise businesses. The organizations will co-host a Small Business Lending Summit Thursday, April 7, 2011, in Washington, D.C., to identify solutions to enable increased lending to small franchised businesses and speed up the economic recovery.
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