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Franchisors Becoming Another Face In Small Business Lending

Written by Jenna Weiner
Published: 6/14/2010

Many potential frnachise owners are turning to their franchisors for help with getting a loan to start their business.

Many franchisors are helping potential owners with financing and incentives, because many of them are having trouble getting traditional bank loans, according to the New York Times.

New Franchise Option for Lending

The Times reports that potential franchise owners will try to raise more than $10 billion in capital, but the banks will lend roughly two-thirds of that, according to statistics from the International Franchise Association.

Banking officials told the paper that in the current economic situation, banks are increasingly wary of first-time franchisors with minimal experience. Lenders are also becoming more cautious lending to chains that are less well-known and don't have proven track records of success.

To encourage more lending from banks and create positive franchising news, the Times reports that some franchisors have also used their own capital to help guarantee portions of the loans, much like the U.S. Small Business Administration. Other companies have reduced fees and royalty costs to make starting a franchise more appealing.

The IFA recently announced its support to federal legislation that would increase funding to the SBA, saying the agency's loan guarantees would help support small business growth. The IFA says that for every $1 billion in lending, franchises can create more than 40,000 jobs and more than $4 billion in economic output.

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