Most Americans understand that small businesses -- not massive corporations -- generate most new U.S. jobs. And when these enterprises hurt, they likewise lose jobs in similar proportions.As influential financial analyst Meredith Whitney observed last May, "Small businesses created 64 percent of new jobs over the past 15 years, but they have cut five million jobs since the onset of this credit crisis. Large businesses, by comparison, have shed three million jobs in the past two years." Like Whitney, the National Small Business Association believes the situation is dire. NSBA's 2010 Year-End Economic Report found that "fully one-third (36 percent) -- which translates into more than 10 million -- of the nation's small businesses are not able to get adequate financing." Consequently, the NSBA added, "small-business owners continue to be financially stymied and unable to grow their business, thereby restricting their ability to create jobs." The Milken Institute's Managing Economist, Kevin Klowden, on March 21 lamented "the bleakest hiring outlook since early 2008." While the entire small-business sector gasps for credit -- the oxygen of free enterprise -- the situation is both troubling and promising for franchisees. Essentially, these are small businesses that compose much larger companies. Consider 7-Eleven. Franchisees run some 5,000 of the company's 6,100 U.S. outlets. They, in turn, are part of a worldwide, 36,000-store network that produced $58.9 billion in sales in 2009. Small business franchises face many of the same headaches as other small companies, but they also potentially could catalyze job creation and the economic recovery when America needs them most. From 2001 to 2005, before the Great Recession began, franchised small businesses populated one of America's most rapidly growing sectors. Their direct economic output expanded by more than 40 percent versus only 26 percent for other businesses. In those years, the franchising industry created jobs at more than three times the rate of other non-franchised business segments. All told, more than 825,000 franchise small businesses in 300 different industrial sectors yielded $2.1 trillion (with a T) in direct and indirect economic output. Franchisees also created one of every eight non-farm, private-sector jobs in America. This solid record shows that, with sufficient access to capital and a stable public-policy and regulatory environment, franchised small business can be a job-creating locomotive that pulls the rest of the economy forward. But, once again, the recurring problem is a lack of coal to shovel into that mighty engine's boiler. In a recent survey, fully 55 percent of the International Franchise Association's members called themselves "moderately" or "significantly" affected by tight credit. This stunts their growth. While 2011's stronger overall economic outlook encourages franchisors and franchisees, a lingering lack of credit sinks their spirits and smothers a broader recovery. For their part, lenders have their own cows on the tracks. Banks face sharp declines in the value of their borrowers' collateral. A much more rigid regulatory environment has bankers looking over their shoulders like never before. Meanwhile, the unemployment rate has hovered near 10 percent, limiting the income that the jobless otherwise would deposit in banks and lowering their demand for lucrative banking services. Many banks' business customers have watched sales volumes slide, forcing them to live with lower profits, if any. The Obama Administration, to its credit, recognizes the importance of credit for small firms. Thus, Small Business Administration chief Karen Mills has worked to raise federal guarantees on SBA loans to 90 percent. She has reduced or eliminated fees on such loans and lifted the maximum amount that a business may borrow from $2 million to $5 million. Meanwhile, the U.S. Treasury has shown a flash of creativity with a new plan to spur state-level lending to small businesses. To find even more solutions to these problems, the International Franchise Association, in cooperation with the National Association of Government Guaranteed Lenders, the Consumer Bankers Association, the National Restaurant Association, and other leaders from the financial and small business communities recently convened at a Small Business Lending Summit in Washington, D.C. Participants -- including entrepreneurs, financiers, and regulators -- discussed the establishment of a franchise registry that would streamline loan approvals and provide a pipeline of qualified borrowers, eager to be financed. All of us - including franchisees, franchisors, lenders, policymakers, and taxpayers - have a stake in igniting the economy by giving entrepreneurs the tools to create jobs and grow. Small business franchising can contribute the missing spark. Steve Caldeira is the president and CEO of the International Franchise Association (IFA). Chad Moutray, a former chief economist of the U.S. Small Business Administration's Office of Advocacy, serves as a senior advisor to the IFA.
********** Published: April 21, 2011 - Volume 10 - Issue 1