It’s the Best of Times, Worst of Times for Franchise Financing

"It would be the greatest time in the history of franchising, if there was enough financing," Tom Portesy, president of MFV Expositions, told The Washington Post at the International Franchise Expo recently. Yes, it’s the best of times and the worst of times for franchising right now. Real estate rents are dropping, and more experienced businesspeople are interesting in franchising as an alternative to the corporate world. The industry would be primed for growth — if only it were easier to get access to capital.

In the same Post article, Frandata president Darrell Johnson estimated financing difficulties could cut the number of potential new franchise openings by 50 percent this year.

But while it may be the worst of times when it comes to traditional financing sources, franchisors are coming to the rescue and taking steps to help franchisees get what they need. A growing number of franchise companies are offering incentives, franchise financing assistance and more to new franchisees. Here are just a few programs I’ve read about in the past few weeks:

• First Franchise Capital announced it will finance new Papa John’s franchisees under a new program announced earlier this month. The Better Financing program allows franchisees with a signed development agreement to apply for up to $200,000 in financing for each restaurant opened in 2010.




• Primrose School Franchising Company brought on a new Managing Director of Franchise Finance, John Teat, five months ago to help its franchisees with financing. Teat, who had worked at franchise lender CIT for 17 years, has helped find financing for 30 new franchisees since coming on board, thanks to relationships with regional banks, CIT and other lenders. Primrose Schools also introduced a real estate leasing program that reduces upfront cash investments by new owners, and has introduced incentives for franchisees in the Chicago, Philadelphia, New York, Boston, Baltimore and Washington, DC, markets that reduce royalty fees and pay up to $35,000 in relocation expenses.




• Home Service Franchising, a home improvement franchise, has cut fees, offered financing assistance and provided incentives for new franchisees. Home Service is also encouraging new franchisees to run their businesses from home so they can save on overhead.




• FranEquity, a website that helps franchisees find alternative financing sourcing, recently announced a strategic alliance with BeneTrends, a provider of small-business retirement plans, that will help potential franchisees use their retirement plans as a source of financing for a new franchise.




• Even Wireless Zone, a retail wireless products franchise that has seen record growth in the past year, is offering to finance half of the franchise fee for new franchisees and is putting $25,000 toward a franchisee’s marketing costs.

With more franchisors recognizing the need to help their franchisees financially, the future looks bright for franchising. If franchisors can stimulate new franchise growth even during today’s tough times, just imagine what franchising can do when the economy recovers.