Franchise Lawyer Blog

Everyone seems to be proclaiming that the recession is over and the light has appeared at the end of the tunnel. Certainly the stock market has priced a recovery into current equity trading. But in the world outside of Wall Street, an economic rebirth will only be measured by two standards: jobs and credit. We have previously discussed the impact of credit trends on franchise growth.Job growth is not a meaningful yardstick in terms of directly measuring franchising trends, but credit developments certainly are. Franchise growth depends on a dramatic improvement in the credit markets.
The International Franchise Association's Smartbrief recently urged its franchisor readership to call and write their Senators "to build momentum to pass S. 2869 early in 2010." The IFA writes that "Sens. Mary Landrieu, D-La., and Olympia Snowe, R-Maine, recently introduced S. 2869, the Small Business Job Creation and Access to Capital Act. President Obama and SBA Administrator Karen Mills have indicated strong support to extend SBA provisions of the American Recovery and Reinvestment Act and increase the maximum loan limits from $2 million to $5 million." To read more on this, see the IFA website.
The expansion of this program is being accompanied by President Obama's attempts to pressure the banking industry to give "third and fourth looks" to loan applications for small businesses that had been prevously rejected. The Wall Street Journal reports that many banks are assuring the President that second-look programs will be implemented immediately or are already in place. Additionally, the article reports that several large banks are increasing their targets for small business lending for the coming year, including Bank of America, JP Morgan Chase and Wells Fargo.
However, talk is cheap. Despite the assurances, the Journal goes on to report that since April, Bank of America's outstanding small business loans have decreased 5%, or $2.2 billion, while JP Morgan and Wells Fargo have also decreased small business lending by billions of dollars. This contraction occurred while these institutions were receiving huge injections of public funding.
Only time will tell if the banking industry will hold up its end of the bargain and what the net effect of any increased lending efforts will be. As of now, the flow of credit to the small business world has not improved.

We attended the International Council of Shopping Centers (ICSC) convention here in New York at the Hilton this week. The ICSC hosts the primary retail real estate conventions in the country, principally in New York City in December and Las Vegas in May.
Why or how does this affect the franchising community? A short walk through the convention floor makes it impossible not to make the connection. A notice board alerts everyone to the the IFA's (International Franchise Association) presentation that afternoon on how "Franchises Offer New Uses for Retail Space." By the way, the IFA is planning to release its own prognostication of the immediate economic future on December 16. You may want to visit the IFA website at that time to see what that admittedly optimistic organization sees in your future.
On a tour of the booths we immediately encounter GE Capital franchisee finance, then Arby 's franchise opportunities, Dunkin' Brands, Yum Brands, Rita's, Red Robin, Subway and on and on. All franchisors looking for sites for their franchisees. You cannot host a retail real estate gathering without talking about franchised opportunities. Retail real estate growth depends on business growth and business is seeing the opportunities presented by the franchise model and the durability offered by that model. As a result, those of us working in franchising are grateful for our real estate experience and looking to make it work to our franchise clients' benefit.
The mood at the convention was one of somewhat forced conviviality. Speakers at the conference were describing a somewhat optimistic tone in terms of consumer spending. However, the real estate market's rebound may take longer than the consumer's. On the selling side, it is not a strong market and many feel the real estate downturn has not yet found its bottom. One of the largest presenters, General Growth Properties, is just emerging from bankruptcy. While no one at the convention was conceding the heretical view that it has become a buyer's market, there is still a real sense that vacancies abound and deals can be had. There is even a growing market for discount brokers and developers picking up and marketing excess space.
A franchisor, franchisee or multi-unit developer who is looking for affordable locations might have found the convention's rather extravagent entry price ($650) worth it. The convention presents a wealth of information concerning available locations for the industries that have traditionally been at the heart of franchisiing, retail and restaurants. They meet again in Las Vegas in May and there are numerous other smaller meetings. Check out the ICSC website referred to above.