Franchise Assoc. CEO: Economy is on track to full recovery

June 20, 2014

Franchising growth is expected to grow significantly this year, according to new reports. FRANdata, which has been analyzing franchising activity for more than 25 years, reports that demand for franchise units is expected to increase by more than 12 percent this year, the highest rate of increase since 2009.

According to a news release, the 2014 Small Business Lending Matrix & Analysis, which was produced for the International Franchise Association Educational Foundation, also finds that the industry’s lending shortfall – the difference between projected loan demand and loan supply – will likely be cut in half this year, positioning the franchise industry for robust growth.

Additionally, the IHS Global Insight reported that the franchise sector will lead the nation’s economic rebound by creating an estimated 220,000 jobs this year.  

"With seven out of 10 franchise business lines adding jobs faster than the private sector at-large, the franchise business model continues to provide jobs and entrepreneurship opportunities for workers and entrepreneurs in sectors as diverse as hotels, auto, business and personal services and restaurants," IFA CEO Steve Caldeira said in the release. “One reason for this success is that credit is steadily becoming more available for franchise expansion.”

Report highlights

Some highlights from the Small Business Lending Matrix and the Franchise Business Outlook include:

  • Franchise demand from both new and existing franchisees is expected to exceed 73,800 unit transactions in 2014. This represents a 12.4 percent increase in demand over 2013 and an 18.8 percent increase over 2012. (FRANdata);
  • To satisfy this demand, franchise businesses will require $29.4 billion in lending. Of this demand, banks will make $28.1 billion available. These funds will provide financing for 70,500 unit transactions, which will create or maintain more than 1 million jobs and support $138 billion of annualized economic output. (FRANdata);
  • The gap between the demand and supply of funds was the largest in 2010 at 16.6 percent. FRANdata projects the lending gap to diminish by half in 2014, from 9.7 percent in 2013 to 4.4 percent this year;
  • Franchise employment is expected to increase by 2.6 percent in 2014, faster than the 2.5 percent growth in 2013 and outpacing projected total employment growth in the U.S. by 0.8 percentage points. (IHS Global Insight);
  • Franchises are expected to add 221,000 new jobs in 2014. Also, with 2.6 percent employment growth, franchises are adding jobs faster in 2014 than 2013 and outpacing projected total employment growth in the U.S. by 0.8 percentage points. (IHS Global Insight);
  • The number of franchise businesses is expected to increase by 12,566 in 2014. This rate of increase is in line with the growth of overall business formation across the economy. (IHS Global Insight);
  • With 4.6 percent growth, the gross domestic product (GDP) of the franchise industry is expected to increase by $22 billion in 2014. This rate of growth is up from 4.3 percent for 2013. (IHS Global Insight).

"Franchise demand for credit is projected to increase for the fifth consecutive year as the economy is finally back on track to a full recovery," Caldeira said in a release. "The lending gap is expected to decline by half in 2014, the greatest reduction since the most recent recession. The reasons for greater availability of credit include budget increases at the U.S. Small Business Administration and an increased willingness by conventional lenders to lend to small businesses."

The FRANdata report also notes that franchise operators' willingness to invest in old and new units is driven by an improved housing market, higher equity prices, and consistent increases in personal income. Meanwhile, bank lending to small businesses is expected to rise, due in part to the rise in commercial real estate values and the overall improvement in the health of the financial system.

The Franchise Business Outlook reports that franchise industry growth has outperformed the overall economy for the past six years.

At the National Restaurant Association Show in May, John Fawkes from the International Franchise Association, said traffic was better than it has been in the past couple of years, especially compared to 2009-2012, which he called “pretty rough.”

“The overall mood is up, and capital is opening more. Last year it started to trickle, and now it’s a bit steadier,” he said. “One of the obstacles in the industry has been access to money, and now the banks are starting to open up and there is more optimism. Franchising is going well; things are going well.”

Topics: Financing and capital improvements, Franchising & Growth, Trends / Statistics

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