More Modest Improvement For The Franchise Sector



Franchising may finally be feeling its post-recessionary boost.

One of the more overlooked signs of the severity of the recent recession was its impact on the franchise business sector. Traditionally, franchising grows with recessions as the unemployed seek business opportunities and are fueled by readily available credit thanks to a government that keeps interest rates low, fueling lending. That didn't happen this time: the number of franchise locations fell three straight years from 2009 through 2011, including a 3.5-percent decline in 2009.

The sector broke that string last year. The International Franchise Association expected the number of franchise locations to grow 1.5 percent in 2012 and, by all accounts, the sector reached that goal. The IFA is predicting a repeat performance in 2013: its recently released forecast predicts a 1.4 percent increase in the number of franchise locations this year. That's modest growth, to be sure, and the sector is still 17,000 locations short of its 2008 peak.

Nevertheless, the franchise sector is expected to outpace the overall economy in terms of employment growth. The IFA's forecast expects 2-percent employment growth in 2013, slightly outpacing the 1.8-percent employment growth expected for all businesses.

In terms of economic output, the franchise sector will grow 4.3 percent in 2013, according to the IFA. Franchising will be an $802.2 billion business sector this year.

Much of the recent improvement in the franchise sector can be traced two an improvement in the financing markets, which kept the sector at bay from 2009 through 2011 as banks' lending restrictions largely prevented the sector's growth. In particular, those restrictions kept many new franchisees from getting loans, keeping many of the newly unemployed from looking to franchising. Yet the improvement in the lending markets has improved those prospects' chances with the banker, and many franchise systems have developed strategies for helping those get by without loans.

As such, in terms of number of locations, the business services sector and the commercial and residential services sectors, expected to grow by 1.9 and 1.8 percent, respectively, will grow the fastest in 2013. Those sectors are frequented by lower cost franchise opportunities. Still, traditional sectors won't do badly, either: Quick-service restaurants are expected to grow by 1.7 percent in 2013, and their output is expected to increase by 5.2 percent. Many of the fastest growing quick-service restaurants are lower-cost brands, including fast-casual chains and self-service frozen yogurt concepts, that can open for a lower dollar amount than their traditional fast-food cousins.

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About This Blog

News, notes and commentary on franchise financing, including SBA lending, both the SBA 7(a) program and the SBA 504 program, franchise finance programs, development incentives, big deals and startup lending.

  Mary Jo Larson is the publisher of Franchise Times Magazine and its sister publication, the Restaurant Finance Monitor. She is a frequent speaker at meetings and conferences, and at the Restaurant Finance & Development Conference. You can find her on Twitter at @mlarson1011.
  Reporter Jonathan Maze covers restaurants and finance for Franchise Times. He also writes for our sister publication, The Restaurant Finance Monitor, and writes a daily blog on the restaurant industry at www.restfinance.com. You can also catch him on Twitter at @jonathanmaze.

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