Franchise lending is likely to decline this year—by 40 percent. So says a new study released this week by research firm FRANdata for the International Franchise Association’s (IFA) Educational Foundation. According to the report this lending crisis, caused by the recession and ensuing credit crunch, could lead to the loss of nearly “50,000 jobs and more than $5 billion in economic activity” this year.
IFA president Matthew Shay says that the efforts being undertaken by the federal government to spark lending is not enough. The IFA, which represents over 1,300 franchise companies (and more than 10,000 franchisees) is calling on Congress to do more. They’re asking Congress to:
- Increase the Small Business Administration’s 7(a) loan’s maximum limit to $3 million from $2 million and the maximum loan guarantee from $1.5 million to $2.7 million.
- Allow SBA loan prices to be competitive with other forms of capital investment. The IFA contends that the current SBA rate caps discourage bank lending.
- Reverse the new SBA policy on “goodwill” financing of business acquisitions.
- Promote audit standards so banks are assured SBA loan guarantees will be honored.
Shay believes the situation is dire: “Every day that we delay fixing this credit crisis will cause more small business owners to wither on the vine.”