Curves and Dunkin on Mass Avenue Boston

Curves and Dunkin on Mass Avenue, Cambridge, MA

Lisa van der Pool writes in the Boston Business Journal that the stock market’s dive and dried-up credit markets are battering the franchising business.

During previous recessions franchising had served as a bastion for laid-off workers seeking employment. But the lack of available credit today has made the franchise business — which requires a large outlay of cash to get started and maintain operations — a particularly tough prospect.

While the number of franchise starts in 2008 was unavailable, it’s clear that the franchising sector is taking its lumps. Last year, the number of bad loans tied to franchises spiked. And franchise failures for SBA 7(a) and 504 borrowers increased by 43 percent.

SBA loan losses to franchises totaled $93.3 million, a 167 percent increase for the year ending Sept. 30, 2008, according to a report by Colman Publishing in La Canada, Calif. The SBA does not break down franchise loan failures by geography.

“The challenge with this particular recession is the fact that there’s a credit crunch associated with it, plus you have the substantial decrease in assets. So now you have people who don’t have as much capital or net worth, so they can’t invest in a business they might have been able to invest in during the last recession,” said Jim Coen, executive director of the New England Franchise Association and president of the Dunkin’ Donuts Independent Franchise Owners.

Curves for Women, a chain of fitness centers, saw at least 11 of its franchises default on loans last year. Other national brands experiencing defaults among franchises include Domino’s Pizza, Subway and Carvel Ice Cream, according to the Coleman report.

Boston Business Journal