In The News

How Thawing Credit Markets Are Opening Franchise Business Opportunities

May 31, 2013

Small bank approval rate has jumped 5 points, big bank rate 2 points

FranNet President and COO Jania Bailey

Since the near-collapse of the world economy four years ago, tight credit markets have stunted small business growth by shutting entrepreneurs off from startup capital. But they’re beginning to loosen.

The Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications by International Franchise Association member Biz2Credit.com, found that loan approval rates from big banks jumped a half a percentage point from May (10.6 percent) to June (11.1 percent). The increase also represents a more than 2 percentage-point jump from June 2011, when the approval rate was a dismal 8.9 percent.

The loan approval rate from small banks rose as well, from 45.5 percent in May to 47.5 percent in June — a full five points higher than the 42.5 percent rate in May 2011.

This is great news, the latest piece of evidence that the economy is gradually improving and opening up more opportunities for entrepreneurs.
This year, we’ve already seen some of our clients finance their initial franchise investments through unsecured loans, something we hadn’t encountered since 2008, and leveraging their retirement funds tax-free to pay for their initial investments. It’s a smart move. “The more entrepreneurs have access to startup capital, the more jobs they create and the more local economies thrive,” says Jania Bailey, our president and COO.

Franchising is one of the few sectors of the national economy that has added jobs during the recession. The IFA predicts the industry will add 14,000 new units and contribute 168,000 new jobs to the U.S. economy this year, and each new franchise unit adds an estimated 10 new jobs to the economy. If credit markets continue to relax, those numbers may end up being too conservative.

FranNet, a network of 84 franchise consulting locations in the United States and Canada, has had amazing success in directing professionals to franchise opportunities that last. A recent survey of more than 1,000 franchise owners who used FranNet to find franchises shows that 91 percent were still in business after two years and 85 percent after five. Those rates far exceed those of typical small businesses (64 percent after two years, 50 percent after five).

Experience has shown us that usually, when entrepreneurs can secure startup capital to buy franchises, they succeed. Many people don’t know how diverse franchising has gotten and how many low-investment franchises don’t even require office space.

Now is a terrific time to explore franchise ownership as a sustainable career option. Interested? See our directory for the FranNet consultant nearest you.

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