Franchise Loans Down, But SBA Up

2010 will be remembered as a lending year that is lower than even 2009’s dismal lending.  The federal government is trying to make up for the credit crunch through SBA-backed loans. A December 2009 Frandata study (pdf, pg. 7) submitted to the International Franchise Association observes:

…the SBA will increase its total lending to franchisees by 55% to reflect the increased budget the SBA has for loan guarantees in 2010. This leads to an estimated $6.7 billion in lending to franchises in 2010

Data: Frandata/IFA Lending Report

What is surprising is the high percentage of SBA-backed loans in franchising. In both 2008 and 2009, there were 16% of all loans in each year that were SBA-backed loans. This year, as private sector loans to franchises have fallen even further, SBA loans now comprise a whopping 29% of all loans to franchises, that is to say $2.0B in SBA loans compared to $4.7B in conventional (see chart).

SBA-backed loans are increasing in dollar amounts. A chart by Prof. Scott Shane shows that in 2010, SBA-backed loans for all small businesses, not just franchises, are pushing back to normal levels before the 2009 collapse. When compared to last year, the growth in government-backed loans to franchises looks like a geyser. But in the long-term, it looks more like a sprinkler. That seems miserly given the size of the credit hole that franchises are in.