Franchise Stats – Franchising Expected to Skyrocket in 5 Years

Franchising across all industries is set to boom over the next five years, two separate groups of business and financial analysis firms say so. FRANdata, a franchising activity analysis team found in a recent study that in 2014, franchise unit demands are expected to go up by about 12%. IHS Global Insight concurs, adding that the rise in demand will create some 220,000 jobs this year.

This is considered good news for business-minded individuals who are looking to invest in franchising. Franchises are often seen as recession-proof options for entrepreneurs, but the truth remains that businesses suffered from the hurting U.S. and global economy. The franchise industry, which now accounts for over 800,000 businesses in the United States, is now known for offering a huge chance of success with an already recognized and established brand that offers solid support amid the economic booms and busts.

Much of the generally positive projections are anchored on the gradual economic recovery from the recession that crippled businesses – both franchisors and franchisees. As the economy rises out of the pits of hardship and uncertainty, experts forecast a rise in demand for credit by franchises, a trend that the sector has incredibly kept on for the past four years. The findings reveal the franchising industry is on the road to recovery, giving every franchisor as well as franchisee across all types of industries and businesses every reason to be optimistic.

Banks and financial lenders are expected to be friendlier toward franchisees by mid-2014, with the gap in lending trends essentially cut by half, according to the analyses. This observation is seen in light of the increased credit availability, as well as the bigger budget allocated for the U.S. Small Business Administration (SBA).

It is notable, too, that with the economy recovering from the recession, financial institutions and lenders are more welcoming to start-ups and small businesses. Unlike in 2009 and 2010, the years of economic downturn and credit crunch, banks these days are also remarkably more eager to lend to small businesses due to the rising value of commercial real estate.

The International Franchise Association cites the two reports as reflected in 2014 Small Business Lending Matrix & Analysis.

“With seven out of 10 franchise business lines adding jobs faster than the private sector at-large, the franchise business model continues to provide jobs and entrepreneurship opportunities for workers and entrepreneurs in sectors as diverse as hotels, auto, business and personal services and restaurants,” said Steve Caldeira, IFA president & CEO.  “One reason for this success is that credit is steadily becoming more available for franchise expansion.”

Key findings of the Small Business Lending Matrix and the Franchise Business Outlook include:

Franchise demand from both new and existing franchisees is expected to exceed 73,800 unit transactions in 2014. This represents a 12.4 percent increase in demand over 2013 and an 18.8 percent increase over 2012. (FRANdata)

To satisfy this demand, franchise businesses will require $29.4 billion in lending. Of this demand, banks will make $28.1 billion available. These funds will provide financing for 70,500 unit transactions, which will create or maintain more than 1 million jobs and support $138 billion of annualized economic output. (FRANdata)

The gap between the demand and supply of funds was the largest in 2010 at 16.6 percent. FRANdata projects the lending gap to diminish by half in 2014, from 9.7 percent in 2013 to 4.4 percent this year.

Franchise employment is expected to increase by 2.6 percent in 2014, faster than the 2.5 percent growth in 2013 and outpacing projected total employment growth in the U.S. by 0.8 percentage points. (IHS Global Insight)

Franchises are expected to add 221,000 new jobs in 2014. Moreover, with 2.6 percent employment growth, franchises are adding jobs faster in 2014 than 2013 and outpacing projected total employment growth in the U.S. by 0.8 percentage points. (IHS Global Insight)

The number of franchise businesses is expected to increase by 12,566 in 2014. This rate of increase is in line with the growth of overall business formation across the economy. (IHS Global Insight)

With 4.6 percent growth, the gross domestic product (GDP) of the franchise industry is expected to increase by $22 billion in 2014. This rate of growth is up from 4.3 percent for 2013. (IHS Global Insight)

Photo by Caius Durling

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