Posted June 22, 2012 by

Opportunity to Start Franchise is Improving

Have you ever thought about starting your own business?  If you’re holding back because of the economy, you may want to reconsider.

The first few months of 2012 have brought some encouraging news for potential franchise owners hamstrung during the recession by a clenched-fist credit market.

Since the collapse of the housing market and near-collapse of the world economy in the fall of 2008, banks facing increased regulation and oversight of their lending practices have been loath to lend money, especially in the form of unsecured loans — the kind that most newly minted franchise owners need to cover their initial investment costs.

Lately, though, franchisors that work with FranNet, the international network of franchise consultants, have reported that their franchisee candidates are finding it easier to borrow money, even in the form of unsecured loans. It’s a sign that the economy is on the road to recovery and that banks are recognizing the benefits of lending money to worthy business ventures.

Late last year, the International Franchise Association projected 2012 franchise growth of 14,000 new units and 168,000 new jobs. If the economy continues to recover, franchise experts believe, the franchise industry’s growth could surpass even those projections.

“Things are looking up for entrepreneurs who have been forced to pass on great franchise opportunities because they couldn’t secure the necessary financing,” said Mike Welch, who owns FranNet of Minnesota. “To be sure, the country and franchise industry have a ways to go, but finally the outlook is trending up after a long period when it was almost impossible to pry loans out of banks.”

Some of the recent developments:

  • Lending is back: Unsecured loans are once again an option for people with credit scores of 720 or above, according to financial analysts such as Dave Woggon of Texas-based Tenet Financial Group. With good credit scores, borrowers can often combine unsecured loans with money from their retirement accounts to pay for a franchise’s initial investment cost.
  • People can tap into their 401(k)s: Creative entrepreneurs have figured out how to leverage retirement funds tax-free to start a business. A prospective franchise owner creates a C corporation with its own 401(k) plan, then rolls the proceeds from his or her existing 401(k) into the new one. As the only beneficiary of the new corporation’s retirement fund, the person then directs it to invest its funds in the company’s stock, a tax-free transaction that opens up potentially thousands of dollars as startup capital. Many franchise owners have bought their businesses through their retirement accounts or with a 401(k)-loan combination.
  • The American Jobs Act. The act, which President Obama signed into law last month, isn’t as strong as it could be. But it’s still a step in the right direction. It loosens some regulatory barriers to investment in startups and allows “crowdfunding” — Internet-based fundraising of small donations — up to $1 million. “It’s encouraging that small business is getting at least some support from the government,” Welch said.

Welch said the recovery is gaining momentum, and he encouraged people interested in self-employment to consider franchise ownership, a proven way for professionals to build fulfilling and successful careers for themselves without absorbing all the risk of a pure startup.

“Franchise systems provide franchisees with blueprints for success, and hard work takes care of the rest,” Welch said. “Now’s a great time to look into franchising as a career option.”

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