Contributed by Alex Tablin-Wolf
As most franchise business owners know the economy has improved significantly over the past four years but commercial lending levels have yet to rebound fully to pre-2007 levels. As evidence of this, a new report commissioned by the International Franchise Association (IFA), estimates that the 2012 lending demand of franchise businesses will outstrip the lending supply by 18.6 percent.
While the 2012 lending output is projected to increase over the 2011 lending output, the shortfall in lending activity will limit franchise growth. In fact, the IFA study projects that the lending shortfall will translate into 94,000 jobs not created, and $12.9 billion in lost economic output. Even though many banks’ balance sheets are strong, and cash is available for lending, stricter credit standards, the depressed housing market, and economic uncertainty have combined to curtail commercial lending. We are, however, seeing that banks are beginning to increase consumer lending. For example, both credit card and auto loan lending requirements have eased in the first quarter of 2012. There is optimism that this relaxation of consumer lending requirements portends an increase in commercial lending.
That said, with credit still tight, many potential, and current, franchise business owners have sought non-bank financing for their franchise activities. To this end, we have covered the varied means of franchise business financing a number of times on this blog. Additionally, on April 5th, President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act, which is designed to facilitate capital raising of early stage companies (for a full discussion on this topic, see ). Some franchise business owners may be able to raise financing under the JOBS Act.
With bank lending unavailable to many business owners, alternative financing methods are perhaps more important than ever. And even more importantly, franchise business owners need to network. Look to develop relationships with bankers, accountants, attorneys, and other professionals in the business community that may be able to assist with locating financing sources. Once these individuals get to know you and your story, they can be a powerful ally in helping you to obtain financing.