Franchise lending up 6 percent year over year

June 18, 2012

Lending to franchise businesses saw a drop of about 0.5 percent from April to May, according to the monthly Franchise Lending Index from the International Franchise Association (IFA) and BoeFly, an online marketplace connecting small business borrowers with lenders. Despite the drop, however, year-over-year performance for lending to franchises has gained 6.01 percent from May 2011 to May 2012.

The IFA/BoeFly Franchise Lending Index is created from a monthly analysis and integration of both proprietary data from BoeFly's marketplace and franchise loan data from the Small Business Administration (SBA). BoeFly's data is collected in real-time based on the activity of more than 2,200 community, regional and national lenders who use BoeFly to source franchise borrowers.

"The slight drop in franchise lending over the past couple months speaks to the challenges of the current credit market, but it is positive to see that lending to franchise businesses has shown stable year-over-year growth," said Mike Rozman, co-president of BoeFly. "Having tools such as this index puts both franchisors and franchisees in a better position to understand and address the challenges associated with credit access so they can identify trends and opportunities for growth over the long term."

In connection with the Index, BoeFly explored the distribution of loans to new franchise units versus existing locations. For each of the previous two years, the percentage of loans extended to new franchise units remained steady at 47 percent. However, a closer analysis reveals that several franchise sectors and sub-sectors experienced an uptick in new-unit loan volume throughout the last 12 months in comparison to the preceding 12 months. For example, within the restaurant sector, which was flat period over period, the sub-sector of chicken/wing concepts jumped from 45 percent to 55 percent in new-unit lending.

"This analysis reveals that despite the small drop in lending volume, we see a greater portion of lending making its way to new locations, which is a positive trend for job growth," Rozman said.

The SBA data used in the analysis dates back to 2002 and covers more than $20 billion in franchise loans.

Read more about franchising and growth.

Topics: Financial Management , Financing and capital improvements , Franchising & Growth , Operations Management

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