What are the best ways to get financing for a franchise in an economic downturn?
I really don’t believe that a recession would have a terribly negative impact on franchise growth, or in turn, financing. Why? Because many of the same factors that stand in recession would also stand in other times, but more interestingly, some of those factors are even enhanced.
Here’s what I mean.
First, in order to purchase a franchise (unlike a home), the borrower basically shows that the loan is covered (collateralized) by other assets including cash, real estate, even retirement funds. Unlike the credit check and verification of employment (normally) required for home purchase (prior to the current debacle), the purchase of a franchise usually indicates that the buyer is ‘leaving’ current employment and stepping into the unknown. Therefore, the key to the purchase is backing up the loan request with sufficient assets to satisfy a given lender ‘upfront’.
Second, in times of downturn, especially when job loss is part of the equation, franchising is often a logical ‘job replacement’. With so many industry segments now available in franchise form, job loss can be viewed as an opportunity to move into ones own business and achieve additional security (if it’s a quality franchise). Something to consider when buying a franchise, do your homework and understand the true nature of the franchise ‘broker’.