Buoyed by Lending, the Franchise Sector Surges



One report today said that lending to the franchise sector jumped by 60 percent last year. In another, employment growth rose by more than 19,000 in May. While these two reports were separate, by different organizations, they were nonetheless deeply connected.

The lending market has been improving in recent years. This has fueled renewed growth in the sector as existing franchisees grow more confident to expand and new operators sense an improving economy and decide to be their own boss. Thus, there are more restaurants, business services franchises and gas stations, and more of those units mean more jobs.

First, the lending. According to a new report by the SBA newsletter Coleman Report, the National Association of Development Companies and the International Franchise Association, nearly 3,300 SBA loans went to franchises in 2012, for a total value of $3.8 million. The number of loans grew 34 percent, and the total value jumped 60 percent. Average loan size was nearly $1.2 million.

SBA 504 loans increased even more. The loans, which go for commercial real estate, equipment and leasehold improvements, increased 67 percent in 2012 to $2.5 billion in loans.

Between 2010 and 2012, according to Coleman, total 504 loan volume nearly doubled.

Meanwhile, franchise employment grew considerably in May, as franchises added 19,160 jobs, according to the Roseland, New Jersey-based human resources firm ADP, which today released its first National Franchise Report, in conjunction with Moody's Analytics. The report measures employment in the franchise sector. ADP releases one of the most closely watched measures of monthly private sector employment.

For the most part, three sectors dominated that growth: restaurants, business services and food retailers, which combined added 17,590 jobs for the month. This is little surprise, as those three include some of the fastest growing franchises in the country. Business services, which added 2,530 jobs, include temp agencies and cleaning companies that have been booming in the post-recession economy.

The restaurant industry, meanwhile, added 13,980 jobs. Restaurants are typically among the first companies to feel the impact of an improving economy, and they've been expanding recently as consumers feel more confident in their finances to eat out. In addition, the industry includes some rapidly growing franchises like frozen yogurt shops and better burger concepts that have seen some incredible growth in recent years.

The gains in these sectors were offset somewhat by modest declines in employment at education, professional services and real estate franchises. But for the most part, most industry sectors had at least modest employment growth in May.

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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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