Tighter credit makes franchising a harder nut - Triangle Business Journal:

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“Historically, franchising as a business model has been extremelh resilient toeconomic slowdowns, which has helped spur the pace of economicv recovery,” said Matthew president and CEO of the International Franchising Association, in a recenrt press release. “However, the credit crunch is constraining this potentiao growth and slowingeconomic recovery.” Accordinb 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 averagr by 5.6 percent per year throughu 2005. But by when credit began to the pace slowedto 2.1 percent.
PricewaterhouseCoopers is furthee predicting that in 2009 the number of franchisees will declineeby 1.2 percent, a net loss of some 10,000 Donald MacDonald, founder of , a drain and sewer cleaning franchise based in Billerica, remains optimist. He said his franchise has grownh steadily to more than 450 franchiseewssince 1981. He says his franchise did not see any slowdowj in franchising untilthis year, and he expecte growth to continue when credit eases.
“People lost a lot of moneh in the market, so they’rre exploring their options,” he “There are a lot of peoplew out there kicking so we expectsome (prospects) will be directed into However, the lending environment looks gloomy in the Bay State for said Jim Coen, executive director of the and presidentf of the Dunkin’ Donuts Independentr Franchise Owners. “Banks are requiring 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 lookingf for 15 percent down a few years ago are now lookinfg for 30 percent to 40 percent down and are requirinf more nonbusiness assets as “So there’s been a lot of franchisinhg businesses that have slowed he said. But there are still financing optionzs available. “We identified that community banks are more willing to lend in the last six soif you’re a franchise with a national or just a strong brand, that usually worksw well for a community bank,” Coen said. is another financinb source availablefor franchisees.
Elizabeth Moisuk, spokeswomann for the Massachusettsdistrict office, said aboutf 15 franchises have successfully applied for loan since September, and loan approvals for all smalk businesses are up 45 percent sincwe the American Recovery and Reinvestment Act went into effect in Coen, who has spent over 25 years in the franchisinh business, says pursuing a franchiser opportunity in poor economic times makesx sense for entrepreneurs because “there’s a successful businessd model to follow.
” But he also cautione that “not all franchises are worthy of your time and But obtaining financing and investing in a solid franchise is no guarante e of success if entrepreneurs fall into the usuakl traps that lead to business failures. “The challengr is that you’re going into a recession, so you need enougy resources to be able to lastthrough it,” Coen