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As of March 1st, sequestration – the $85 billion in blanket federal-spending cuts – is now a reality which means that access to capital and credit could be even harder for small business owners. The automatic budget cuts are estimated to reduce Small Business Administration (SBA) loan guarantees to small businesses by up to $902 million. When the impact of sequestration begins affecting small businesses, cash is going to become increasingly hard to find and sources of capital will need to grow. Recent studies predict that, if the sequester is fully implemented, “more than 2 million jobs could be lost, with nearly half of those coming from small business.” So the question is, if SBA loan guarantees are indeed cut, what does that mean for small business borrowers? The answer: alternative small business lenders. Small businesses are often ideal customers for bankers which could mean that banks may very well start to cater to small business borrowers. “Banks love small-business loans because they renew annually; the banker touches it once a year; the bank gets a customer’s checking account, a credit card: they love these accounts. They’re just completely inept at doing them,” says BBC Easy chief executive officer and co-founder James Walter. Almost every U.S. bank is tied into the SBA program, however. If that program gets cut as a result of the sequestration it could end up making banks even less likely to make small business loans. For the franchise industry, a franchisor financing program offered to first-time and multi-store franchise owners who qualify may be the perfect alternative solution. The International Franchise Association (IFA) estimates that at least 75 to 100 franchisors are currently working on innovative, creative solutions to help both existing and prospective franchisees get into business or expand their business. According to the IFA, “nearly 11,000 new U.S. franchise units opened their doors last year, the first gains the sector has seen since 2008. But the industry remains in recovery mode. “We still have an 18 percent lending shortfall in the franchise industry,” says IFA president and CEO Steve Caldeira. Several IFA members have already developed programs to help qualified franchisees get in the franchising game or expand their business: Custom swag retailer Instant Imprints offers financing at zero-percent interest for two years. Marco’s Pizza raised $5 million in private equity funding to help franchisees with down payments. Hurricane Grill & Wings raised $10 million toward financing for new and existing franchisees. Auto body repair and paint franchisor, Maaco, offers lower license fees and reduced royalties for multi-store operators. Gold’s Gym opened a new financing arm to help would-be and existing franchisees secure funding. Massage Envy has partnered with Franchise America Finance to help franchisees secure loans. For more info, click here
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