Rays of Optimism Evident in State of Franchise Financing

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Graph showing improvement in franchise financingIn today's competitive business environment, our margins continue to get squeezed from every direction. Wages continue to inflate, commodities continue to soar, and utility costs fluctuate wildly. The focus of the 2013 Multi-Unit Franchising Conference was "Driving Profitability." As a group, we recognize the challenges we are facing every day as franchise business owners. Together, we have the resources to develop strategies that will continue to drive profit to your bottom line!

Multi-unit franchise owners from all over the country answered the call and came to take advantage of the learning and inspiration that would come from this conference. One of the big draws, as always, was Darrell Johnson, President and CEO of FRANdata, a company that studies and reports on the franchise industry.

Johnson is a frequent speaker at franchise conferences, and when he speaks, people listen. He’s been referred to as the Guru of Franchise Financing, the authority, the sage, the pundit, the analyst, the expert. And for good reason: He’s been probably 95 percent correct in his predictions for the state of franchise financing. He’s never sugarcoated the truth. When he said things were going to get worse, they did. And when he said things were going to level off, they did.

Which brings us to this year—2013—and the fact that this time, his message was slightly different about how things are trending. While the economy is still not great, it is starting to turn just a little.  Johnson described it in terms of how broad economic factors continue to impact business and the franchising industry in particular. Consumer is still not low enough; there’s still too much of it out there. The housing market is improving but needs more time. Consumer confidence is still low, and although retail spending is trending up, it’s just not rising fast enough. Small business confidence, though, is beginning to grow a little.

How does small business lending stack up against this broad economic landscape? Access to capital is getting better, and it is true that banks have increased lending because their deposits are growing. Credit officers are easing up a bit, as well. But, the willingness to lend is just not there.

While the SBA is helping some, it lends to low-risk merchants who already have the money. Credit risk is still tight. From ’09 to ’11, the SBA failure rate rose from 13 percent to 18 percent. That’s huge!

Johnson included one of my favorite quotes from Winston Churchill: The USA gets it right after they exhaust all other options. Of course this is said tongue-in-cheek, but these are the facts: Yes, the economy is improving. You may not see it or feel it yet, but the numbers say it is getting better. The economy may never get back to the way it was, but things are finally getting better.

 

Image courtesy of  jscreationzs / FreeDigitalPhotos.net


Scott Kantor

Scott Kantor is the Director of Business Development at BFS Capital. With a focus on Franchise Development, Scott works with BFS Capital to achieve its goal of providing working capital to owners of small and medium-size businesses. BFS Capital is proud to be an accredited BBB company with an A+ rating. Follow BFS on Google+, Twitter and Facebook.

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