“Unchanged” Diagnosis for Ailing Economy

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The first six words of the Labor Department’s June report on jobs says it all – “Nonfarm payroll employment was essentially unchanged. . .”  More than 14 million Americans are unemployed.  Of these, 6.3 million are classified as long-term unemployed.  More than a half million Americans have lost their jobs since March.  Add to the 14 million an additional 8.6 million Americans who are classified as “part-time for economic reasons”.  These are American workers whose hours have been cut  or who are working part-time because they have been unable to find full-time work.  And in each section of the report, the code words are “unchanged”, “no improvement”, “essentially flat”. 

Many years ago, Senator Jennings Randolph told the story of his first meeting as a young congressman with President Franklin Roosevelt.  During the depths of the Great Depression, President Roosevelt called a meeting in the White House of Congressional leaders, business leaders, scientists and educators.  His first words were, “Gentlemen, we must act, the time for debate is over.  We must act now.”

IFA leaders have urged congressional leaders and administration officials to take such action on three fronts.  First, examine recently imposed financial regulations that are restricting the flow of capital to small businesses.    House Small Business Committee Chairman Sam Graves (R-MO) agreed with IFA, saying that forcing banks to keep more capital in reserve has stifled borrowing.   ‘We’ve got to untie the hands of these lending institutions,’ Graves said. ‘It’s ridiculous what you have to jump through.’”

Second, IFA has urged Congress to increase support for the SBA 7(a) loan program.  At the current pace, the 7(a) program will hit its $17.5 billion authorization cap before Sept. 30.  IFA leaders have urged Congress to increase the 7(a) lending authorization limit to $19 billion before it leaves town for its August recess.

Third, IFA leaders have called on Congress and the Treasury department to redirect a portion of the $30 billion Small Business Lending Fund to support an expanded loan program for small businesses.   Only a fraction of the fund has been distributed and many community banks have expressed no interest in receiving funds due to the governmental red tape.

Franchisors and franchisees understand that “unchanged” is not a winning strategy.  Businesses must grow and expand, adding new products and services, to win more customers.  A greater sense of urgency and a call to action by both government and business leaders is needed to “change” our ailing economy for the better.     

Posted by John Reynolds, President, IFA Educational Foundation

Campaign for capital access beginning to resonate

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The biggest challenge facing the franchise industry’s ability to create jobs and reach its full potential is access to capital. Franchisors want to expand their systems. Franchisees need to make enhancements to their existing stores to keep up with the competition. Many also want to secure credit in order to grow. Without credit, our industry is handcuffed and held hostage — much like the rest of the economy.

Our message about this critical challenge and its direct impact on job creation has begun to resonate among political and media thought leaders in Washington, D.C.

Treasury Secretary Timonthy Geithner, June 22, 2011. Mark Wilson, Getty Images

House Small Business Committee Chairman Graves brought this issue to light in his committee, convening a hearing entitled, “The State of Small Business Access to Capital and Credit: The View from Secretary Timothy Geithner.” 

IFA is now calling on Congress to ask Secretary Geithner and others to reverse financial regulations that are strangling small business credit and to redirect the failed $30 billion Small Business Lending Fund – such as SBA’s proven and very successful loan guarantee programs.

As The Wall Street Journal reported yesterday, many banks have participated in SBA loan programs that provided a 90% guarantee from the government, and would support a similar arrangement today.

“That approach is echoed by William Hall, who owns Dairy Queen franchises in Texas and chairs the credit access committee of the International Franchise Association,” the Wall Street Journal wrote. “’The government actually can help, but it isn’t going to be the same way they did in the TARP program. It has to be some sort of guarantee program,’” Bill told the Journal.

“The IFA estimates that franchise businesses, which amount to some 825,000 small businesses in America, will be able to access $8.4 billion in lending this year, but expects a shortfall of $2 billion in available loans, even with the government program,” the Journal continued. 

IFA will continue to press the case for increasing credit access with lawmakers, the Administration and in the media – and stay tuned for more tools and resources for IFA members and franchise lending partners as we work to develop private sector solutions to spur lending and create jobs within the franchise industry. 

Posted by Matt Haller, IFA Director of Communications

POLITICO: Can small businesses bank on $30B loan fund?

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Link: POLITICO: Can small businesses bank on $30B loan fund?

Today’s Politico.com features an in-depth story about the credit crunch facing small businesses, quoting Rep. Sam Graves (R-MO), Chairman of the House Small Business Committee, Sen. Olympia Snowe (R-ME), IFA President & CEO Steve Caldeira, and representatives of the Small Business Administration. “For the past few months, the [IFA] has been lobbying Congress to examine whether new regulations have harmed small-business lending. “If we could eliminate some of the regulatory hurdles, there would be more capital to lend,” Caldeira said. [Chairman] Graves shares Caldeira’s perspective, saying that forcing banks to keep more capital in reserve has stifled borrowing. “We’ve got to untie the hands of these lending institutions,” Graves said. “It’s ridiculous what you have to jump through.” Read more here.

Are financial regulations killing jobs?

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There is increasing concern across America that Dodd-Frank, last year’s banking regulatory reform, is having harmful, unintended consequences on small business–and jobs.

With the economy showing no signs of a return to pre-recession unemployment numbers, policymakers are beginning to become aware of the issue of access to credit for small businesses, due to its direct correlation to job creation, but more is needed to truly accelerate the economic recovery. 

Surveys of franchise businesses by the IFA indicate that financial regulatory reform is having a crippling effect on the lending environment to small businesses. In fact, the commercial lending market to small business is almost frozen. This is extremely harmful to franchising. Study results say the credit gap for franchised small businesses is at least 20%, but the evidence suggests the number may be much higher. This credit gap is a root cause of unemployment and continued economic stagnation in our country.

Last week, leaders of the IFA including President & CEO Steve Caldeira, Credit Access Task Force Chairman Bill Hall, multi-unit franchisee Aziz Hashim and The UPS Store’s VP of Domestic Development Kevin Pignone met with Martin Gruenberg, the Vice Chairman of the Federal Deposit Insurance Corporation. They were joined by Tony Wilkinson, President & CEO, and Greg Clarkson, Chairman, respectively, of the National Association of Government Guaranteed Lenders.

For the first time in IFA history, the organization met with one of the top financial regulators in the nation to offer the franchise industry’s perspective on the business climate as well as our members’ experience that escalating capital reserve requirements set by regulators and the current financial regulatory environment in general have essentially halted small business lending.
The IFA estimates that the credit gap this year will be over $2 billion – the equivalent of 332,000 jobs by the end of 2011 in our industry. Franchised small businesses can’t create jobs if they don’t have access to credit.

 The Treasury Department’s $30 billion approved in the Small Business Jobs Act has not succeeded in its goal of providing capital where it is needed in the U.S. economy.

  
From left, FDIC Vice Chairman Martin Gruenberg and FDIC Chair Sheila Bair (Bloomberg News)

On Wednesday, June 22nd, House Small Business Committee Chairman Sam Graves (R-MO) will hold a full committee hearing entitled, The State of Small Business Access to Capital and Credit: The View from Secretary Geithner.

The only witness at the hearing will be U.S. Treasury Secretary Timothy Geithner, the administration’s top financial policy maker.

The hearing will review the current state of small business access to equity capital and debt financing. The hearing will focus on the Department of Treasury’s current and future efforts to assist the private sector in providing the needed funds for small businesses to expand and grow.

We urge IFA members to contact their representatives and urge Congress to ask Secretary Geithner and others to examine and, where necessary, reverse financial regulations that are strangling small business credit. Also, the Small Business Lending Fund, a whopping $30 billion that has been completely ineffective, should be redirected to efforts that work – such as SBA’s loan guarantee programs.

Click here to find out how to contact your representative.

Franchise Industry Leaders to Address U.S. Conference of Mayors’ 79th Annual Conference

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In the IFA’s ongoing effort to develop positive working relationships with the elected leaders at all levels of government, on Sunday, June 19th, IFA Chairman Jack Earle, Managing Partner of Earle Enterprises, LP, and IFA Board of Directors Member Catherine Monson, CEO of FASTSIGNS International, will address more than 500 mayors from across the country as part of the United States Conference of Mayors’ 79th Annual Conference.  They will be joined on the panel by USCM President, Mayor Elizabeth Kautz, from Burnsville, Minn., Mayor Anthony Foxx, from Charlotte, N.C., and George Cloutier, CEO of American Management Services, Inc. and widely respected small business expert.


The plenary session, titled “Mayors and Small Business/Franchise Owners – Building a New Strategy to Retain and Create Jobs in America”, will give presenters an opportunity to discuss how the franchise industry can be a catalyst for job creation as the nation recovers from the recession and the challenges franchise businesses have faced in securing adequate capital necessary to grow and create jobs to their fullest potential. 

In 2009, the U.S. Conference of Mayors passed a resolution supporting the role of small businesses in economic development.  The IFA and the U.S. Conference of Mayors have been working together since to educate mayors across the country about the importance of franchise businesses in local communities.

Posted by Wayne Weikel, IFA State Director of Government Relations & Public Policy