The International Franchise Association introduced new tools to help bridge the gap between banks and franchisees looking for financing, including a Franchise Lending Index and Franchise Lending Template, at its second annual Small Business Lending Summit last week in Washington, D.C.
The index will measure franchise credit access on a monthly basis and was created in partnership with BoeFly.com, an online lending marketplace. The new lending template, set to debut in the second quarter, was developed with the Consumers Bankers Association to ease communication and establish an easier way to handle due diligence between potential borrowers and lenders.
The moves were announced at last week’s summit, which was hosted by the IFA, The Financial Services Roundtable, Consumers Bankers Association and the National Association of Government Guaranteed Lenders. The groups came together to discuss the lending environment for small businesses, especially franchisees, during a time when growth has been stifled by lack of access to credit. In 2012, franchise businesses demand $11.72 billion in capital, but will receive $9.5 billion, creating an 18.6-percent shortfall, according to the IFA. The gap, although smaller than in 2011 when it hit 19.6 percent or in 2010 when it totaled 22.8 percent, is created by tighter credit standards, increased regulations and tax uncertainty, the association said.
“While we have seen an improvement in lending since we began this campaign, more education and outreach from the franchise industry will be critical to closing the gap between franchisors’ demand for growth and banks' ability to meet that demand,” said Steve Caldeira, president and chief executive of the IFA.
“With the tools and solutions we have developed, including the franchise lending template, IFA’s award-winning website smallbusinesslendinghub.com, and partnerships with companies such as BoeFly and Guidant Financial to connect better bank-ready franchise borrowers with lenders, we are on the right track,” he noted.
Franchise Lending Index
The IFA/BoeFly Franchise Lending Index delivers a monthly analysis of both proprietary data from the BoeFly lending marketplace and franchise loan data from the Small Business Administration. It is set to become a standard measure of franchise credit access based on volume of loans and lender interest in new loans. Set to a value of 100 based on data from January 2002, the index will show relative trends — a rise indicates expanding access to credit for franchise borrowers and a decline indicates contracting access to credit.
According to the index, franchise lending has steadily increased during the past 12 months, but still remains below the 100 mark. Franchise lending rose 10.6 percent between February 2011 and February 2012. During the past two years, the steepest increase in access to credit occurred from November 2010 to December 2010, when Small Business Administration lending rose as part of the American Recovery and Reinvention Act of 2009, which allotted $730 million in SBA loans.
“The index confirms that access to credit in the franchise industry has achieved relative stability, a non-trivial achievement in the wake of the financial crisis,” Mike Rozman, co-president at BoeFly, said.
Franchise Lending Template
The Consumers Bankers Association represents some of the largest financial institutions in retail banking, or banks servicing consumers and small businesses, and the group worked with the IFA to develop a tool to help the lending process, both for potential borrowers and lenders.
The template, expected to be available in the second quarter of the year, will also help lenders better understand the franchise business and what franchise lending entails, therefore encouraging more investment.
“It’s an opportunity to provide franchisees — all in one place, on one template — the questions and information banks want,” said Mark Luppi, chairman of the small business committee of the Consumers Bankers Association. Luppi oversees small business banking for HSBC in the U.S.