The International Franchise Association announced the formation of a Small Business Lending Working Group to identify immediate and long-term solutions to a lending shortfall that is hampering franchise business growth and job creation.
The Small Business Lending Working Group is the result of an unprecedented Small Business Lending Summit held in Washington, D.C. April 7 that brought together nearly 200 franchising and banking leaders, and policymakers and administration officials to identify proactive approaches to collaboration and education to get credit flowing again to the nation’s franchise businesses.
“Increasing credit flow to fuel the job-creating power of small business franchising is our number-one priority,” said IFA President & CEO Stephen J. Caldeira. “As the nation pursues economic recovery and a return to job creation and growth, the IFA is committed to working with key stakeholders in the small business, financial and regulatory communities to reduce barriers to small business lending. We will now work with our colleagues in the financial and policy communities on specific solutions that assist lenders and franchise small businesses.”
IFA organized the Summit in conjunction with the Consumer Bankers Association (CBA), CIT, National Association of Government Guaranteed Lenders (NAGGL), and the National Restaurant Association (NRA) to address the projected decrease in lending to franchise businesses and identify solutions going forward.
Panels representing lenders, franchisors, franchisees and policymakers addressed different aspects of the credit access issue and its impact on business growth and job creation. Key presenters included Senate Small Business Committee Chairwoman Sen. Mary Landrieu (D-LA), House FDIC Board of Directors Vice Chairman Martin Gruenberg, Don Graves, executive director of the President’s Council on Jobs and Competitiveness, Karen Mills, administrator of the Small Business Administration, Darrell Johnson, president & CEO of FRANdata, and Steve Moore, senior Economic Writer & Editorial Board member for the Wall Street Journal, Caldeira also announced a broad education campaign. “Going forward, IFA, NAGGL, CBA and NRA will develop education and training programs and use their media and membership resources to communicate with members and key constituencies on new lending programs and best practices.”
“As part of this campaign, IFA will embark upon an effort to develop a national franchise loan registry to help standardize and streamline the loan process for franchisors, franchisees and participating lenders,” he added. The nation’s 825,000 franchise businesses support nearly 18 million jobs in the U.S., or one out of eight jobs in the private sector, generating $2.1 trillion in economic activity.
During the Summit, attendees reviewed the results of a new Small Business Lending Matrix & Analysis prepared by FRANdata for the IFA Educational Foundation that shows demand for franchise business growth in 2011 far outpaces the ability of franchise businesses to access financing, despite a more positive business climate and increased investor interest for franchise expansion. The report says franchise businesses will require $10.4 billion in new lending capital to fulfill 100 percent of the forecasted demand for new and transfer units in 2011, but credit flow may fall short by 20 percent.
“Even with the estimated shortfall in lending in 2011, we estimate that more than 33,000 franchises, both new units and transfers, will create or maintain more than 250,800 jobs and generate $32.5 billion of annual economic output in 2011,” Caldeira said. “We know from past performance, 40 percent growth during the last decade, that the franchise industry could create even more jobs and more economic output if lending were at 100 percent.”
Caldeira added that franchise business leaders fully recognize that lenders face challenges as well, including sharp declines in the value of borrowers’ collateral, a strict regulatory environment, and while the unemployment rate has dropped a full point since November, lenders have also been affected by long-lasting, record-high unemployment rates the past few years, he said.
Caldeira said that the biggest challenge for franchising is to show that the promise of lower risk is real, that the franchising industry’s proven, structured and scalable business model translates into more profit and less risk equation than other businesses.
“We are committed to continuing the dialogue started this week,” said Caldeira. “By working together, the lending community and franchise businesses can create more new jobs and get the economy moving again. That’s good news for everyone.”
Materials presented at the Summit, including a white paper, “Linking Franchise Success with, Economic, Growth and Net Job Creation,” survey results from a Franchise Business Leader Survey, and the Small Business Lending Matrix & Analysis can be accessed at http://www.franchise.org/smallbusinesslendingsummit.aspx