Franchising Takes Hit as Personal Wealth, Credit Dip

The stock market’s dive and dried-up credit markets are battering the franchising business.

During previous recessions franchising had served as a bastion for laid-off workers seeking employment. But the lack of available credit today has made the franchise business — which requires a large outlay of cash to get started and maintain operations — a particularly tough prospect.

While the number of franchise starts in 2008 was unavailable, it’s clear that the franchising sector is taking its lumps. Last year, the number of bad loans tied to franchises spiked. And franchise failures for SBA 7(a) and 504 borrowers increased by 43 percent. SBA loan losses to franchises totaled $93.3 million, a 167 percent increase for the year ending Sept. 30, 2008, according to a report by Colman Publishing in La Canada, Calif. The SBA does not break down franchise loan failures by geography.

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Source:  Bizjournals.com