Credit crunch hijacks hopes for would-be franchise owners

…the tight credit market has made it difficult for would-be business owners to find financing, something that's "really wreaking havoc on the sale of franchises," said Alisa Harrison, a spokeswoman for the International Franchising Association. As a result, the organization predicts a 1.2 percent decrease this year…

http://www.orlandosentinel.com
July 20, 2009

Credit crunch hijacks hopes for would-be franchise owners
Sandra Pedicini

The allure of owning a business, combined with the security of working with an established corporation, has for years made franchising a popular choice for budding entrepreneurs.

But for some, the recession is quashing that particular aspect of the American dream.

Usually, a downturn increases interest in franchises as people laid off from corporate jobs try opening their own restaurants, convenience stores and child-care centers.

This time, though, the tight credit market has made it difficult for would-be business owners to find financing, something that's "really wreaking havoc on the sale of franchises," said Alisa Harrison, a spokeswoman for the International Franchising Association.

As a result, the organization predicts a 1.2 percent decrease this year in the number of new franchises — the first decline in about 20 years, even as companies are offering franchisees more financial assistance. Quiznos, for example, announced a microloan program in May and this month, 7-Eleven started offering a 10 percent discount on franchise fees for military veterans.

After losing home equity and value in their 401(k) as the economy soured, Sabrina and Chris Boesch turned to a lease program run by Georgia-based Primrose Schools to start up their own Lake Mary franchise."Economically, our timing couldn't have been worse," said Chris Boesch, whose wife currently works as director of an Orlando Primrose School. "The money just wasn't there. … There was a lot of extra stress and worry about whether we were going to be able to be able to get a loan."

Though they will open their new school in 2010, the leasing program will allow the Boeschs to delay the expense of buying property for a few years. In all, the total cost will be more than $3 million, Boesch said.

In Altamonte Springs, Kurt Bock's loan for his first Bruegger's bakery franchise didn't come through until he'd already opened the location. He used money set aside for a second location to open it. Bock doesn't know whether he'll be able to get financing any time soon for a second store — it looked "next to impossible" a couple months ago — and things haven't gone all that well at his first one.

His business has struggled — the result of a lot of bad luck including medical problems, a general manager who departed and a location that hasn't drawn in enough customers. Bock's business plan calls for five locations. But "I'm not going to invest additional capital in the second location until I can get this one turned around," he said.

Other franchise locations never were able to turn around their downward slides as the economy began to decline. Super Suppers and Cork & Olive are among the businesses where franchisees have closed Central Florida locations during the past year.

Despite perceived security, "research has shown the failure rate of franchises is not necessarily lower than regular businesses," said Ilan Alon, a professor of international business at Rollins College who has written several books on franchises.

Things went more smoothly for Elias and Amy Khoury, who started running a 7-Eleven in Longwood a few months ago. The Khourys started looking into a franchise after Elias Khoury got laid off from his job in real estate. The couple hopes to take over a second location, though they're not sure when they'll do so. The couple said they started the business using savings and private investors, rather than trying to secure loans from banks.

"Even though 7-Eleven and convenience stores weren't recession-proof, we thought that kind of industry was definitely going to take the recession a lot better than something like real estate or general retail," Elias Khoury said.

Many of the company's stores are already owned by franchisees. In a few states, the company is turning corporate-owned stores over to franchisees.

In Florida, that started in late 2007. The company has a little more than 100 Florida stores converted, with about 460 still corporate-owned.

Joanne Webb-Joyce, the company's senior director of national franchising, said 7-Eleven is satisfied with that pace. "We're not into 'Let's go fast,'" she said.

Still, the company does hope to generate more interest through its discount for veterans. It also recently launched a new Web site to give information on franchising.

Sub chain Quiznos' microloan program aims to help franchisees re-open closed stores and start up locations. The company is also trying to help out franchisees by renegotiating rents, vice president of development Todd Haavind said. So far, it has made fewer than a dozen loans, each a few thousand dollars apiece.

The program began after franchisees started asking Quiznos whether the company had any loan money available because of their difficulties finding more traditional financing, Haavind said. "They wanted to see if we had some options."

Sandra Pedicini can be reached at moc.lenitnesodnalro|inicideps#moc.lenitnesodnalro|inicideps or 407-420-5240.

Copyright © 2009, Orlando Sentinel

http://www.orlandosentinel.com/news/local/orl-economy-franchises-harder-to-get-072009,0,3365522.story


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