Franchise Growth Threatened, Congress Urged to Act on Bailout

WASHINGTON, D.C. (Blue MauMau) - A franchise trade association as well as small business leaders are increasingly vocal in urging Congress to approve a bailout plan for the financial markets in hopes of bringing stability to the franchise industry. Others urge caution.

In a letter to every member of the House and Senate, the International Franchise Association said that franchised small businesses are financed through savings and borrowing. "This crisis threatens to derail the future growth of franchised businesses because it undermines the health of credit markets as well as equity markets," the document states.

“Congress must act quickly to remove bad debts off balance sheets and ensure that financial markets can be stabilized so that credit will continue to flow to U.S. consumers and small businesses,” IFA president & CEO Matthew Shay said. “Franchised businesses rely on stability in our financial markets to ensure that affordable financing is available, and many franchisees purchase their businesses using a combination of personal savings, investments and borrowing. They will definitely face a more challenging future if Congress fails to act.”

At least one economist sees it differently. Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), believes that caution is in order in approving the White House's massive $700 billion bank bailout package. Keating observes, "Watching this massive taxpayer bailout of Wall Street develop over recent days, a question comes to mind: Is this a financial panic or a political panic? I have no doubt that markets work, and of course the price to be paid for bad business decisions will be painful. But no evidence exists that we need to rely on politicians and their appointees, and the massive intervention that has been proposed, to save our financial markets. We need to look at alternatives, of which several should be strongly considered."

Shay stresses that stabilizing the global financial system and preventing a systemic collapse of capital markets must remain the government’s top priority. “To prevent a collapse of capital markets, Congress must put aside partisan differences, united (sic) behind a bipartisan proposal and pass it quickly without extraneous provisions," Shay declares.

Bob Seiwert, sr. vice president of the American Bankers Association's Center for Commercial Lending and Business Banking and a 35-year veteran of the banking industry who has loaned to many franchise owners, agrees. "It is critical that Congress pass the bailout quickly," he proclaims. 

Seiwert reminds franchise and small business owners that even if the bailout is passed tomorrow (the weekend), things will not all be right the next day. The glut of bad debt in the market needs to filter out.

"It will take time for the bad assets to work through the system and for banks to get additional funds so that they can entertain more credit requests," says Seiwert. This is an important first step and it is a critical one."