Franchise lending dips in July, some areas experience growth

Jessica SarterFranchise Finance

Many reports in recent months have shown that the franchise sector has seemed impervious to the widespread hardships of the recession. From specific franchisors reporting almost unbelievable gains in the first two quarters of 2012, to studies of advocate groups such as the International Franchise Association showing that franchise lending fared well through several months, conditions seem ripe for prospective franchisees.

Regarding successes in recent quarters, the restaurant franchise industry has been booming through the first half of 2012. The Franchise Times revealed that the top 200 restaurant franchises grew 3.2 percent year-over-year in the second quarter. Additionally, several franchisors released their own results from the first two quarters, showing expansions in overall revenues, numbers of locations and the average revenue of each location.

Still, many advocates believe that credit access has been tough for franchisees, and that a lot of work needs to be done to improve franchise lending conditions. The latest IFA/BoeFly Franchise Lending Index revealed that lending volumes dropped 3.64 percent from June to July of this year. This was some surprise, as the June index showed a 5.73 percent increase over May.

While July’s volumes still represented 1.43 percent growth year-over-year, there was still a significant tightening of credit availability relative to earlier months this year. Notably, some of the more specific portions of the franchise lending landscape showed significant growth, such as quick-service restaurants (QSRs).

According to BoeFly, lending to QSR franchisees increased 28 percent year-over-year in July, making it a likely candidate for the most successful franchise category. Co-president and chief strategy officer of BoeFly, Michael Rozman, spoke to this finding.

“As credit access continues the slow climb out of the lows of the financial crisis, our data show that lenders are first turning to industries they understand well, such as restaurants,” Rozman explained.

BoeFly is an excellent resource for any entrepreneur looking to obtain franchise loans. The firm uses complex algorithms to match borrowers with prospective lenders, through only one loan application. Further, with thousands of participating lenders, franchisees can be sure that they are provided with the most efficient and advantageous loan application process.

Steve Caldeira, President and CEO of the IFA, expressed his thoughts on the results of the latest index, as well as what actions need to be taken to reverse the downward trend of July.

“The downward pressure on franchise lending confirms that credit access continues to be a challenge for franchisees, given the ongoing uncertainty in the economy and weak consumer confidence,” Caldeira explained. “To improve the business environment for franchising, IFA continues to educate members of Congress and the Administration on the challenges facing franchise small business owners and the importance of policies that facilitate capital access and job creation.”

BoeFly also released an infographic and accompanying guidance pertaining to franchise loan acquisition best practices. In the report, titled “How to Get a Franchise Loan,” the firm recommends partaking in adequate research of the franchisor and the lending market, as well as making rational requests and much more.