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October 27, 2008

Will Legislators Loosen Loans For Latte Machines?

Joel Libava

King, Franchise Selection Spec\'s Inc

Summary

The food related segment of franchising is the largest of all franchise types. From fairly upscale restaurant chains, to bagel shops, to cof

The food related segment of franchising is the largest of all franchise types. From fairly upscale restaurant chains, to bagel shops, to coffeehouses, to fast food restaurants, it is a huge segment, and one that pumps a lot of money into our economy.

I was reading a story over at Smart Money online, a couple of weeks ago, and something I read caused me a little concern;

"Sharon Zackfia, a restaurant industry analyst, said in an investor note Friday morning that GE Capital has halted new franchisee franchising, although it will continue to honor pre-existing financing agreements."

That is certainly an interesting development. Even more interesting was this story in AdAge that has to do with McDonalds franchisees getting loans for upgrades:

"Tightening credit conditions are crimping plans for marketers as diverse as giant General Motors Corp. and relatively small household-products company Method, have prompted Bank of America to halt loans to McDonald's franchisees. They need the capital to frantically build coffee bars in the chain's 14,000 locations for what was planned to be an April coffee introduction."

Folks, this is all about lattes. Tasty, high profit, lattes.
While you digest those two new developments related to franchise financing, I will scour the news bureaus for some positive and uplifting US financial news.

Found it. Laura Ashely is reporting an earnings increase for its retail stores. Clothing seems to be quite the hot commodity.

Whoops. Scratch that. Laura Ashely is in the U.K. Sorry...

Anyway, what is the story with this economy? The Congress is finally done arm wrestling, with the winners getting a year's supply of pork, and the bailout specifics seem to be redefined every other day. The Presidential candidates are engaged in some kind of bizarre dance over the state of the US economy, and the US consumer doesn't seem to have too much influence concerning this debacle.

The franchise industry is certainly being affected by our current financial squeeze, and that is not good.

Do you know just how big franchising is? The 909,000+ franchised businesses in the US account for more than 11 million jobs! Read more about the economic impact of franchising.

We should all be a little concerned if big lenders are taking a serious pause at franchise financing. It looks like McDonalds, one of the most recognized brands in the world, doesn't even have the financial clout to persuade underwriters to consider financing a few thousand fancy coffee machines.

(Think that McDonalds will have any trouble selling some nice coffee concoctions at their restaurants? This blogger doesn't! Heck if I had a nice credit line, I would loan them the money. McDonalds has a great track record of correctly marketing their new offerings.)

The franchise industry will probably take a hit for awhile, like just about any other industry. In times like these, I feel that one needs to be a student of history. History shows us that over time, stocks will outpace any other investment. The stock market always comes back, and this time should be no different.

The proposed bailout needs to work. I hope that this 110 page document includes some major magic. The markets all need to be able to breath and the lenders need to lend. Small business drives the US economic machine. The machine will run out of gas, if it is left to idle.


About The Author: Joel Libava is a Cleveland, Ohio franchise consultant and marketer. He blogs at The Franchise King blog. His website is The Franchise King.
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