Let It Flow: Industry desperately needs access to more credit
**For every $1 million of lending obtained by franchise small businesses, 34 jobs are created and $3.6 million in annual economic output is realized.
The current recession and credit crunch are putting the hurt on franchise businesses, says a new report by the International Franchise Association (IFA). There's no question that the franchising's economic growth and ability to create jobs has been hamstrung by the lack of available credit.
The study, Small Business Lending Matrix and Analysis, prepared by industry research firm FRANdata, highlights the relationship between lending to the franchising sector and its capacity to develop new businesses and expand existing ones. According to the findings, franchise lending will fall 40 percent in 2009. Fallout will include the loss of nearly 50,000 jobs and more than $5 billion in lost economic activity.
Need more proof? The U.S. Small Business Administration reports that small businesses have accounted for 60 to 80 percent of annual job creation over the past decade, and currently account for almost 50 percent of all jobs in the private sector.
"Historically, franchising as a business model has been extremely resilient to economic slowdowns, which has helped spur the pace of economic recovery and provide alternatives to individuals who were downsized or displaced by other businesses or sectors of the economy," says Matthew Shay, IFA president and CEO.
According to the report, every $1 million lent to franchised small businesses creates 34 jobs and $3.6 million in annual economic output. But the credit crunch is constraining this potential growth and slowing overall economic recovery.
Shay says the U.S. government must do more to help open channels of funding for the franchise sector.
"We can break the logjam of capital for new small business creation and expansion of existing companies by making modest changes to SBA lending policies," he said. "But every day that we delay fixing this credit crisis will cause more small-business owners to wither on the vine due to constricting credit policies."
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