Big Name Franchises Having Trouble Getting Loans

Joel Libava
Mon, 29 Sep 2008 06:10:00 +0000

The food related segment of franchising is the largest of all franchise types. From fairly upscale restaurant chains, to bagel shops, coffeehouses, and fast food restaurants, it is a huge segment, and one that pumps a lot of money into our economy.

I just finished reading a story over at Smart Money online. Something I read caused me a little concern;

"Sharon Zackfia, a restaurant industry analyst, said in an investor note Friday morning that GE Capital has halted new franchisee franchising, although it will continue to honor pre-existing financing agreements."

That is certainly an interesting development. Even more interesting was this story that has to do with McDonalds franchisees getting loans for upgrades;

"Tightening credit conditions are crimping plans for marketers as diverse as giant General Motors Corp. and relatively small household-products company Method, have prompted Bank of America to halt loans to McDonald's franchisees. They need the capital to frantically build coffee bars in the chain's 14,000 locations for what was planned to be an April coffee introduction."

While you digest those two new development related to franchise financing, I will scour the news bureaus for some positive and uplifting news.

Found it. Laura Ashely is reporting an earnings increase for its retail stores. Clothing seems to be quite the hot commodity.

Whoops. Scratch that. Laura Ashely is in the U.K. Sorry….

Anyway, what is the story with this economy? The Congress has been arm wrestling for a week or so to decide the bailout specifics, the Presidential candidates are engaged in some kind of bizarre dance themselves, and the US consumer has no say whatsoever in this debacle.

Do you know just how big franchising is? It is this big! We should all be a little concerned if big lenders like Bank of America and GE Capital are taking a serious look at franchise financing. In Bank of America’s case, it looks like one of the most recognized brands in the world doesn’t even have the financial clout to persuade BOA’s underwriters to consider financing a few thousand fancy coffee machines. {Think that McDonalds will have any trouble selling some nice coffee concoctions at their restaurants} This blogger doesn’t! {Heck if I had a nice credit line, I would loan them the money. McDonalds has a great track record of correctly marketing their new offerings.}

The proposed bailout needs to work. I hope that this 110 page document includes some major magic. The markets all need to be able to breath and the lenders need to lend. Small business drives the US economic machine. The machine will run out of gas, if it is left to idle.

The IFA's Stance On The Bailout
Franchise Finance Tips {Joel Libava is the President of Franchise Selection Specialists Inc. in Cleveland.}