Franchise Growth Expected to Accelerate
As lending goes, so goes franchising. So as the lending environment continues to improve, companies that franchise are growing, too.
According to a pair of new reports, the franchise business model is expected to grow at its fastest rate in five years, growth largely brought about by an improvement in lending.
Frandata, the franchise information firm based in Virginia, expects demand for franchise units to increase by more than 12 percent this year. That's the highest rate since 2009. That same report also found that franchising's lending shortfall, which it calls the difference between loan demand and loan supply, will be cut in half this year.
Meanwhile, another report by IHS Global Insight this month found that the franchise sector will create 220,000 jobs this year.
This echoes regular monthly reports by the human resources firm ADP that the sector is adding jobs at a brisk pace, including more than 50,000 jobs over the past two months. In general, franchise businesses are adding employees at a rate faster than the national economy, and of small businesses.
Lending is vital to franchises because operators need loans to open new units, for the most part. When they can't get those loans, franchising slows down. In 2009 and 2010, the sector largely ground to a halt because franchisees couldn't get lending.
The IFA, among other groups, has been pushing for more lending ever since. But with low interest rates, coupled with growing interest from lenders, the gap between loan demand and loan supply has been thinning. This has led to flourishing growth in franchise businesses this year.
According to the Frandata report, demand for new and existing franchisees is expected to exceed 73,800 units, a 12.4-percent increase over 2013, and an 18.8 percent increase over 2012.
To satisfy that demand, franchises will need $29.4 billion in loans. Banks are expected to make $28.1 billion available, funding 70,500 units. That's a 4.4-percent gap, easily the smallest since the numbers have been tracked. In 2010, the gap was 16.6 percent, and it has fallen every year since.
The addition of these new units is creating jobs, at an expected growth rate of 2.6 percent. That outpaces total employment growth in the US by 0.8 percentage points.