Franchising’s $2 Billion Lending Gap, and a New Plan to Fill It

Jessica SarterBoeFly In The News

Forbes

ForbesWhat’s keeping the U.S. economy in the doldrums? One answer: Aspiring franchise owners can’t get the business loans they need to open the doors.

Many of these franchises are fast-food restaurants or retail stores that would hire workers. That hiring is being stifled by the small-business lending logjam.

Many SBA-backed loans for franchise startups traditionally were secured by the franchise owner’s home equity. But the real-estate crash made it harder to go this route, moving more loan activity into the lap of bankers who don’t work with SBA. These commercial lenders have less experience working with franchise systems, so the lending pipeline slowed to a crawl.

The result is a backlog of pent-up demand for funding from franchisees who failed to get loans. The International Franchise Association (IFA) estimated this “lending gap” at $2 billion last year, representing some 10,000 franchise establishments that didn’t open that would have created roughly 94,000 jobs. The gap has eased slightly this year to $1.8 billion in loans denied, but a substantial shortfall remains.

The timing for the new Accelerator database is good, as banker interest in lending to franchise owners is definitely on the upswing.

Read the full article on Forbes.com