Tight Credit Is Turning Franchisers Into Lenders

According the the New York Times, “When Remi Tessier recently decided to open a pizza franchise, he got a big surprise: it was not going to be easy to get financing from a bank.”

“Mr. Tessier had owned a liquor store for nearly a decade. He had a good credit score and a solid track record as a businessman in central Georgia. He assumed lenders would be happy to help. ‘I went to several banks and they acted like they could do loans,’ Mr. Tessier said. “But when it came down to it, it was ridiculous. Ultimately, the terms and conditions were just outrageous.’ So Mr. Tessier turned to another source of capital, his franchiser. He financed the $250,000 cost of opening his pizza restaurant though a leasing program established by Marco’s Pizza to help franchisees unable to obtain traditional loans. The case is one example of a trend that is rattling the chains of franchising: facing a $3.4 billion credit shortfall, franchisers are trying to spur growth by offering franchisees new financing approaches and incentives.”