Many of the most credit worthy business owners are still finding difficulty in o obtaining business loans in spite of their superior credit reports. Franchisees, in particular, are being offered loans, with stringent terms and conditions which make business loans undesirable. Local banks are requiring larger collateral, liquidity, more outside sources of income, and more experience in the field.
The International Franchise Association estimates that there will be a need for $10.1 billion in capital, but only $6.7 billion available this year. Many of the national franchise lending companies have either cut back on funding or have stopped lending money.
Because of these problems, the ones who are least likely to acquire financing are the new franchisers with little or no experience and little or no capital to invest in the franchise. The franchisers have now made financing possible for those who, according to the local banks, are a credit risk in view of the new financing standards. They are guaranteeing part of the loans so that franchisees can qualify for the loans and they are reducing their own fees and royalties.
Marco’s Pizza has created a private equity fund to invest up to $100,000 per restaurant, as well as a leasing program to finance up to $200,000 in operating costs. One applicant, Remi Tessier tried to secure a loan to buy a franchise from his local bank. He had previously operated a liquor store and wanted a change. But his $300,000 in the bank, $9000 in monthly income and a credit score of 800 were not enough to ensure that he would not have to reach into his pocket for renovations and other fees later on.
Instead, he sought funding from Marco’s Pizza, which only required 25% down. Because of the magnitude of the economic crisis, lending requirements are more stringent. However, more and more franchisers, such as Marco’s Pizza, are making it possible for entrepreneurs to invest in new businesses.