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Oregon Office:

Douglas D, Smith

PO Box 1034 

Sherwood, Oregon 97140-1034

Phone: (503) 840-0000

 

Utah Offices:

Bradley D. Smith

FranchiseSmith Utah, LLC

5508 West Kensington Circle

Highland, Utah 84003

Phone: (801) 615-1564

 

Douglas D. Smith

Franchise Smith, LLC

201 Red Pine Drive #4

Alpine, Utah 84004-5618

Phone: (503) 840-0000

 

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Recent Economic News is Still Not Good for Franchising

September 5, 2011

In my August 9, 2011 entry, I describe why this recession is so different for and difficult on the franchise industry. Well, the news is not getting any better as the following announcements from International Franchise Association newletters show:

 

On September 2, 2011, the IFA said the following in its newletter:

 

"IFA research showing increasing pessimism among franchise executives echoes a number of studies that reflect a gloomy outlook on the economy. A study by Gallup found that American confidence in the economy has dipped to 2009 levels. Consumer sentiment, meanwhile, has dipped to its lowest point in three decades, according to an index maintained by Thompson Reuters and the University of Michigan."

 

And:

 

"The financial picture for U.S. franchises has gone from bad to worse in recent months, according to a new IFA survey. Lack of access to credit is one of the top concerns, along with worries about the costs of new health care reform laws."

 

This confirms the ongoing effect that inexpensive franchise programs (those that require little if any conventional financing) will remain in the forefront  for the foreseeable future. It also confirms that prospective franchisees with significant liquid assets are in a position to be highly selective in their investment decisions and in a position to command significant  concessions from franchisors who have high entry threshold costs.

 

The IFA's August 22, 2011 newletter had earlier asserted that:

 

"The downgrade of the U.S. credit rating by Standard & Poor's has created uncertainty in the franchising industry, with lenders continuing to be reluctant to give loans to franchise candidates and candidates themselves becoming more likely to back away from purchasing a franchise. Some franchisors, ...are getting directly involved in the loan process right from the start."

 

And in the IFA's June 24, 2011 edition:

 

"Banks haven't warmed to a $30 billion offshoot fund of the Troubled Asset Relief Program designed to encourage loans to small businesses amid concerns over the possibility of TARP-style oversights and the creditworthiness of businesses looking for loans. "The government actually can help, but it isn't going to be the same way they did in the TARP program. It has to be some sort of guarantee program," said William Hall, chairman of the credit access committee of the International Franchise Association. "

 

On July 10, 2011, in the Palm Springs Desert Sun, experts state that small businesses (including franchisors and franchisees)  will continue to find it difficult to obtain conventional financing. They recommend seeking alternative sources such as "peer-to-peer" lenders. Many of my clients can confirm that convertional financing sources have not been helpful. Several have experienced significant growth through the use of funds borrowed from individual investors who have been disgrunteled with the poor returns offered by conventional financial institutions. Several others are actively taking advantage of equipment financing programs that tend to be more freely available and from "merchant account factoring" programs that offer fairly expensive but easily obtained advances against future credit card transactions.




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