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As CIT Group lurches away from the dreaded ‘B’ word – bankruptcy – it’s a pertinent time to reflect on the importance of franchising to the US economy. Times are pretty tough without essential lenders going under. If franchises weren’t allowed the capital to trade and to profit, it’s heard to figure where the US economy might find the strength to galvanize itself.

As franchising goes, so goes the economy. That’s the title of a very interesting article on Allbusiness.com by journalist and business executive Keith Girard. He quotes an IFA study on the impact of the  recession from May that lays out some scary figures for the industry, including the loss of 25,000 jobs and $5.1 in economic output.

Girard writes: “In past recessions, franchises have not only helped spur the pace of economic recovery but have also provided alternatives for individuals who were down-sized or displaced by other businesses or economic sectors, according to the IFA. Without the ability to play that role, the recovery could be delayed, or worse.”

Girard, like IFA President Matthew Shay, calls for more job growth and greater government intervention for the small business sector. Perhaps the government had a duty to save the likes of GM and AIG, but as the CIT scare showed, franchises have to cope with a similarly difficult lending environment and will need greater government intervention if they are to help revitalize the economy.

Big news is afoot in Washington as it seems that the US Treasury is about to step in and launch a $15billion bailout of the Small Business Administration. The plan is to use federal bailout money to buy out SBA loans. There is also talk that President Obama is to raise the cap on SBA loans.

The Washington Post has all of the information. Interestingly, it was only a week ago that we wrote that CIT must be saved and criticized the federal government’s failure to bail out CIT. Well, CIT seems like it will keep its head above water and survive. The SBA bailout is probably the best news to come out of Washington in months, and its worth noting that IFA First Vice Chairman Kenneth Walker (Driven Brands CEO), IFA Secretary Jon Luther (Dunkin’ Brands Exec. Chairman) and IFA President and CEO Matthew Shay have been holding meeting with Treasury representatives this week.

Here’s a brief run-down of the reaction to the decision.

Over on the Huffington Post, business columnist Jerry Chautin provides a
run-down of all the chatter on Twitter to the move. He quotes Stacy Kildal, owner of Advanced QB ProAdvisor, who wrote “Even if a loan/line of credit isn’t needed right now, who knows what may happen down the road? Form the relationship now.” A window as opened, Kildal and Chautin urge entrepreneurs and prospective franchisees to get out there and talk to your loan officer.

“Get an introduction to the chief loan-officer and find out how the loan committee makes its decisions. Ask how business loans are underwritten, what collateral is required and learn about the credit qualifications you need to pass muster,” Chautin writes.

Meanwhile, over on the always interesting New York Times’s You’re The Boss blog, Scott A Shane provides some charts on the decline of small-businesses in the US. One can only hope that this bailout by the federal government can reverse this trend.

Finally, the Wall-Street Journal offers small-business people tips on other routes to secure funding, beside the big loan providers. For franchisees, Advice on pursuing funding via microloans and peer-to-peer networks seems especially worth considering.

America is going through some fundamental shifts at the moment. The day is coming when minority groups will have a bigger population base than America’s white European descendants. It’s all part of the incredible evolution of America, but in the mean time, the surge in the population of minority communities presents some mouth-watering business opportunities for franchisors.

Picking up on the mantra of change that swept Barack Obama into the White House last November, Maria D’Ambrosio, senior director of inclusion and diversity for Choice Hotels International writes in the IFA’s Franchising World about how to attract minority franchisees in the latest issue of Franchising World.

There’s a lot of interesting facts to take in.

A study from 2002 shows that minority enterprises brought in over $686 billion in annual sales and employed about 4.7 million people. Imagine how that’s gone up in 7 years! Equally, the ratio of non-minorities to minorities is only 1.5 to 1 from Americans under the age of 20, a staggering fact.

D’Ambrosio urges franchises to reach out to minority communities through media that caters specifically to the African-American, Hispanic or Asian communities, not to mention pro-minority business lobby groups like the National Black MBA Association to the U.S. Hispanic Chamber of Commerce.

Finally, she encourages people to take advantage of the IFA’s Diversity Institute: “The International Franchising Association’s Diversity Institute has been very successful in partnering with a number of such agencies across the United States to offer seminars to educate and raise awareness about the benefits of franchising,” she says.

All good advice and worth keeping in mind for attracting the next great franchising sector.

Today we have a special guest blogger: The Franchise King, Joel Libava. Joel has written an exclusive blog post on the popularity of Franchise Broker Networks. His opinions are as usual thought-provoking.
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I am amazed by the sheer number of new franchise brokerage groups that have launched this year. What gives? The US economy is what gives. As more people are laid off, the pool of prospective franchise candidates will increase. I guess that all of the folks that are starting these new franchise brokerages are hoping to capitalize on this trend. The problem with their thinking is that there are already way too many franchise brokers in the marketplace vying for the attention of a very limited number of prospective franchise owners. Very few prospective franchise buyers actually go through with a franchise purchase. It is the nature of any big ticket item, especially one that involves a moderate to serious level of risk. {Full disclosure; I am an independent franchise broker/consultant, but used to be with a “group.”} I chose to become an independent broker/consultant for a variety of reasons. They include

• No fee sharing. I keep 100% of my success fees.
• No monthly group marketing fund contributions
• I choose which franchisors to represent
• No territory restrictions placed on me
• No politics to deal with

Whether or not one should join a “group,” has to do with one’s personality. Some people do a lot better, and end up being more successful, by going it alone. Some enjoy being in a group, and the feeling of being part of a team can be powerful. Individual brokers generally don’t need to recruit more brokers, but since most broker networks are themselves franchises, they need market to prospective new brokers. Some may advertise that brokers can.

• Become an entrepreneur!
• Small one time up-front fee
• No experience required!
• Professional training available
• No cold calling/Leads provided
• No inventory/No employees
• Executive level income
• Work part-time or full time

Here is what those marketing messages really mean:

1. The excitement of “becoming an entrepreneur” is a real feeling. So is depression. One can get rather depressed when they find out that it really takes several months to make their first franchise placement, and get paid on that placement.
2. This is also known as a franchise fee. Most of the newer franchise brokerages are set up as a franchise. {Most of the older ones have converted to the franchise model} This means lots of rules, and a fee of anywhere from $20,000 on up. Also, you pay the brokerage a percentage of your placement fee, every time you make a placement.
3. How many want ads have you seen that also say “No Experience Required?” This usually means a straight commission sales related job. In this particular case, it’s not a sales job. You have bought yourself a franchise, and you only get paid when you make a franchise placement.
4. Training. It’s usually 3-4 days. It’s probably good training, too. There is a learning curve, and like anything new, you need to be patient.
5. If you hate cold calling, then you may enjoy this career. Personally, I have never knocked on a door to find a potential franchise candidate. Now, about those “leads.” These come from the internet, and some of them can be quite good. It’s a numbers game, though. Figure on finding a one or two really strong franchise candidates per one hundred internet leads. Some lead sources are better than others, so the numbers may be better, sometimes.
6. You have no inventory. That certainly helps in the expense category. You are a one-person show. Can you say Multi-Task? If you work better by yourself, this one’s for you.
7. Income. This gets tricky. If you are thinking about becoming a franchise broker, what do you think executive level income is? More importantly, what do the executives of the franchise brokerage think it is? For instance, I have seen marketing messages from brokerage groups that say, “A Very Realistic 6-Figure Income Potential.” I guess by saying the word “Potential,” lawsuits are avoided. But “A 6-Figure Income” sure jumps out at you, doesn’t it? I just love marketing!
8. Flexible hours can be fantastic. I love the flexibility I have. It took a long time to get there, though. It’s your business. Work at it any way you want.

Does it seem that I am being rather hard on these new franchise brokerages? I am. Someone has to wake up potential new franchise brokers about the reality of this business. I love what I do. It’s a blast, even during real tough times. {Like for instance, 2007-2008.} There are some really good franchise brokerages out there. The good ones will be very picky about who they award their franchises too. The average and below average ones will eagerly accept your check for $20,000, and see if you can make it as a franchise broker. {The Franchise King, Joel Libava, is a Cleveland, Ohio based franchise consultant, marketer, and no-spin franchise blogger. His company site is Franchise Selection Specialists , and he regularly updates  The Franchise King blog}

This week’s Franchise Update is going dog crazy!

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We’ve got some exciting news about two of our best pet franchises. Home Buddies by Camp Bow Wow is celebrating the addition of 12 new franchises in the last six months. This is a top new pet franchise concept and it’s great to see it experiencing growth.

Also, Bark Busters have published some useful guidelines for looking after your pet during the back to school season. They include sage advice like providing it with home toys and showing it less attention in the run-up to the first day of school.

Thanks for watching!