The current recession and credit crunch will likely lead to a 40-percent decline in franchise lending this year, according to a study released Tuesday by the International Franchise Association.
The study, prepared by FRANdata for the IFA Educational Foundation, indicated that such a reduction in lending could result in the loss of nearly 50,000 jobs and more than $5 billion in economic activity in 2009
Matthew Shay, IFA president and chief executive, said: “The new report shows that for every $1 million of lending obtained by franchise small businesses, 34 jobs are created and $3.6 million in annual economic output is realized. However, the credit crunch is constraining this potential growth and slowing economic recovery.”
While the federal government is making efforts to spark lending for small businesses, Shay said that more must be done.
“Policies that promote lending to small businesses will create a more sustainable and less costly economic recovery,” he said. “Congress and the administration must do more to free up capital for small businesses.”
The IFA study, entitled “Small Business Lending Matrix and Analysis,” indicates that the franchising industry will require an estimated $8.4 billion in financing to meet 100 percent of demand in 2009.
The IFA recommended Congress assist small businesses by:
* Increasing the Small Business Administration 7 (a) maximum loan limit from $2 million to $3 million and the maximum loan guarantee from $1.5 million to $2.7 million.
* Allowing SBA loan prices to be competitive with other forms of capital investment. Current SBA rate caps discourage bank lending, the IFA said.
* Reversing the new SBA policy on “goodwill” financing of business acquisitions.
* Promoting audit standards so that banks have assurance that loan guarantees will be honored.
“We can break the logjam of capital for new small business creation and expansion of existing companies by making modest changes to SBA lending policies,” Shay said. “But every day that we delay fixing this credit crisis will cause more small business owners to wither on the vine due to constricting credit policies.”
The IFA represents 1,300 franchise systems, 10,000-plus franchisees and more than 500 firms that supply goods and services to the industry.