WASHINGTON The continuing credit crisis will lead to a $3.4 billion shortfall in lending to franchise businesses in 2010 unless the government intervenes, according to new data released Wednesday by the International Franchise Association.
The IFA said that if no steps are taken to increase the flow of capital into the franchising sector next year’s projected shortfall could prevent the creation of 134,000 new jobs and $13.9 billion in economic output.
“Our data show that while there will be sufficient capital for franchise development in 2010, banks’ continued risk aversion is limiting their willingness to lend,” said Matthew Shay, president and chief executive of the Washington, D.C.-based IFA. “Immediately passing enhancements to government lending programs can shore up the $3.4 billion shortfall in lending. New franchise businesses can create much-needed jobs, which will speed the U.S. economic recovery.”
Shay said the IFA’s updated “Small Business Lending Matrix and Analysis,” which was prepared by Frandata, estimates that banks are expected to lend $6.7 billion to franchises in 2010, versus the $10.1 billion that would meet 100 percent of demand. The IFA said the shortfall was caused by banks’ conservative approach to a weak economic outlook and uncertainty in the commercial real estate market.
Shay added that the Small Business Administration could play a critical role in easing credit in 2010. FRANdata estimates that if changes are made to the SBA loan programs, available credit could increase in 2010 to $7.8 billion, resulting in 46,000 additional jobs.
Among the modifications urged by the IFA are an increase in maximum SBA loan limits from $2 million to $5 million, changes to borrower fees depending on amortization length, and the addition of a 100-percent guarantee on loans for the first two years of a franchise startup.
An IFA survey of franchise business executives found that nearly half, or 49.2 percent, of the survey respondents ranked “financing and access to capital” as their greatest concern.
The IFA represents more than 1,250 franchise systems and more than 500 suppliers.