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Financing in Franchising

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Usually in an economic downturn history has shown that franchising practically blooms like a cherry tree on steroids. But this latest downturn (2008/2009) has proven a fickle party where there are very few people invited.

The panic of low consumer spending has been matched only by the panic of the banks to hold on to any liquidity like a jealous wife.

Unfortunately this pairing of panic has been a disservice to the franchising industry, and has in fact brought the small business sector to a standstill. There are stories abound from small business owners who have no hope in having the support of their bank manager even if their business has been a success over the last 7 years. Cash flow can be the killer for small business and if business owners can’t rely on leniency from their banks, during times where suppliers and clients are pulling their patience in lengthening out payment terms…who can they rely on?

This poses a threat for growing businesses two-fold:

o Non-franchise businesses who planned growth projects and had received assurances pre-2008 from their bank managers that they could go ahead – had the rug pulled from under them when these assurances were withdrawn and instead are knee deep in carrying out redundancies

o Franchised businesses who rely on the banks to be able to lend money to prospective franchisees are also let down when they are told that unreasonable interest rates will be charged to anyone seeking finance

So what are the answers? Yes, the economy will inevitably pick up as it always does, but this time we have learned a valuable lesson in our dependency on finance routes. Perhaps there needs to be alternatives for franchisers to build into their offering regarding financing routes for prospective franchisees, in order to minimize the impact that banks can have on franchise growth.

At the end of the day money is what makes the world go round, although it’s not a fair playing ground where only one mighty hand has the power of holding the purse strings. Let’s get more innovative about how money can move responsibly and wholesomely to the businesses that have done nothing more than grow, employ people and add to the economy.

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