Lending Summit Highlights Progress in Small-Business Lending



Progress is being made, but lending gaps remain.


An expanded coalition of trade groups representing the financial services and small-business communities announced April 17 an expanded private-sector partnership to strengthen small-business lending and spur job creation at International Franchise Association’s 2nd annual Small Business Lending Summit.

The summit was conducted in Washington, D.C. with nearly 300 franchise business, lending and policymaking leaders in attendance.

IFA President and CEO Steve Caldeira, CFE, welcomed attendees by reminding them that “Small businesses create 64 percent of all net new jobs in America” and “we urgently need to expedite our nation’s economic recovery.”  Definite progress is being made, said Caldeira, represented by “loan volume increasing by nearly 12 percent to franchise small businesses, from 8.4 billion to 9.5 billion dollars since last year.” And National Association of Government Guaranteed Lenders President and CEO Tony Wilkinson described the summit as “not an event, but a process.”

The groups, including the Consumer Bankers Association, Financial Services Roundtable and the National Association of Government Guaranteed Lenders, cited regulations as a key factor impacting their ability to make loans and access capital.

Steve Bartlett, president and CEO of the Financial Services Roundtable, said that “Washington loves conflict,” but this time there are no conflicts and neither are there two sides.  “Bankers have the need to lend” and “businesses have the need to borrow,” and “regulators need to make that happen because that is what finances the economy.” 

In addressing issues of uncertainty in today’s lending landscape, Consumer Bankers Association President Richard Hunt included taxes, health care and the upcoming elections, but said, “Our banks stand with you ready to lend.”  Hunt announced that CBA and IFA will release a Franchise Lending Template to ease the loan application process. “No more red tape.  No more bureaucratic bank by bank, franchisee by franchise verbiage.  This is the one document that everyone can use at his disposal.”

In describing the state of small business today, IFA Educational Foundation President John Reynolds, CFE, said indications point to the health and vitality of the franchise sector and the last 12 months show a steady climb, but lending hasn’t kept pace with the needs of franchise businesses.  As a result, an 18.6 percent lending gap will deprive the nation of 94,000 new jobs and $12.9 billion of gross domestic output this year.

National Federation of Independent Businesses Chief Economist William Dunkelberg said the people have no confidence in government policy and Gallup Chief Economic Dennis Jacobe said consumer confidence is the highest it’s been in the past four years at 24, but the normal is 100.

To view the Small Business Lending presentation click here.

Challenges and Solutions
During an exchange on the challenges and solutions to small-business lending, Luther talked about real estate becoming affordable in certain markets, but still encountering lending obstacles while CIT Bank Managing Director and COO Gary Taylor said that the company analyzes each situation and there isn’t a “cookie cutter approach.”  Nitin Shah, Asian American Hotel Owners Association past chairman and current chairman of the Embassy National Bank Atlanta said new construction for hotels is almost shut down and that bankers are looking at “global cash flow.”  IFA Credit Access Task Force Chairman Bill Hall, CFE, a Dairy Queen multi-unit franchisee, pointed to such challenges as high gas prices and the impact of health care.

Private-Sector Solutions
One year ago, the first summit was a wake-up call for banks, said HSBC Chairman, CBA Small Business Committee and Executive Vice President and Head of Business Banking Mark Luppi during the private-sector solutions segment.  Bank of America Line of Business Executive Joe DiNicola pointed to economic indicators, such as the Dow at about 13.9, as well as $12.8 billion from the U.S. Small Business Administration to franchises.  BoeFly Co-President Mike Rozman recommended that franchisors help franchisees obtain loans by allowing the brand to share meaningful information and FRANdata President and CEO Darrell Johnson, CFE, said franchising has an lending advantage because it has a history. BrightStar Franchising CEO and Co-Founder Shelly Sun, CFE, suggested three strategies to access capital:  transparency of information to lenders, support from the franchisor to the franchisee and benchmarking and monitoring.

Policymakers Weigh-in
The groups called on policymakers to hear about the challenges small businesses and lenders are facing in the current economic and regulatory environment. Speaking at the summit, SBA Administrator Karen Mills praised the IFA for its support of SBA lending programs, reporting the SBA has guaranteed $5.3 billion in loans to 5,200 franchisees during her tenure. House Majority Whip Kevin McCarthy said the rulemaking from the Dodd-Frank financial reform law needed to be slowed down to free up capital for small-business loans.

Other policymakers, such as representatives from the U.S. Conference of Mayors suggested engagement with their respective mayors.  Burnsville, Minn. Mayor Elizabeth Kautz suggested that IFA members go talk to their mayors while Charlotte, N.C. Mayor Anthony Foxx said, “We’re on the ground; the first call is us.” Kautz and Foxx serve as co-chairs of the U.S. Conference of Mayors Small Business and Franchising Task Force.

The President’s Council on Jobs and Competitiveness Executive Director Don Graves said the White House understands that the regulatory environment is creating some uncertainly and that it is ensuring that the examination process isn’t overly burdensome. And Federal Deposit Insurance Corporation Acting Chairman Martin Gruenberg noted that franchising is “part and parcel of the engine driving our economy.”

Demand for Franchises
At the summit, IFA released a new report that shows a bank lending shortfall could cost the franchise industry 94,000 jobs. Jon Luther, IFA chairman and chairman of the board for Dunkin’ Brands and Arby’s Restaurant Group, joined CNBC’s Squawk Box and FOX Business for interviews to discuss how the IFA is helping the small-business community recover from the lending crisis. ”Franchises have a very high success rate and everyone coming together at the summit aides the world of franchising,” Luther says. “There is a high demand for franchising because the formula for franchising is a workable formula that has been proven and tested and there is a high success rate when opening a franchise store.”

IFA also announced two new strategic partnerships during the summit. An IFA/BoeFly monthly Franchise Lending Matrix was released, showing franchise lending improving steadily for the last 12 months. Through its alliance with Guidant Financial, IFA and Guidant will jointly develop and conduct educational programs focused on credit access for franchise businesses.

Franchising Committed to Veterans
Focus, resourcefulness and reliance are three characteristics military veterans bring to franchising said Institute for Veterans and Military Families, Syracuse University, Mike Haynie, Ph.D., and IFA’s VetFran program has welcomed 2,100 veterans since its inception and 55 new program members since 2011, according to IFA Vice President of Strategic Initiatives & Industry Relations Beth Solomon.  PostNet franchisee and U.S. Navy veteran Amanda Crow thinks it’s “amazing” at the age of 27 to own a store and urges companies interested in recruiting veterans to learn their lingo. The year 2011 was a record lending year, $30 billion of government guaranteed lending, said SBA Capital Access Senior Advisor Patrick Kelley.

Take Aways
Mark Luppi, HSBC chairman, CBA Small Business Committee and executive vice president and head of business banking closed out the summit by suggesting franchisors use the temple and banks to create a franchise unit that incorporates a SBA-enhanced unit, as well as understand the template.