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Craig Hsueh's picture

Tight Money Dampens Franchise Buyers?

Well put. What goes up must come down!

The key question in looking at the ball is the tipping point of knowing when the ball is about to come down so as to be ready for it.

It makes sense that a tightened money supply dampens new business loans and hence start-up franchises. If the Fed tightens money enough through high interest rates, then the would-be business owners feel less available equity to get a business loan. On the other hand, the common wisdom with franchise development departments is that if the economy contracts, there is a fresh wave of laid-off workers who want to be their own boss.

On both topics comes this Economist article ($$) from my morning read:

"It is in the American housing market that the bear may growl loudest. By borrowing against the surging prices of their homes, American consumers have been able to keep on spending. The housing market is already coming off the boil. If prices merely flatten, the economy could slow sharply as consumer spending and construction are squeezed. If house prices fall as a result of higher bond yields, the American economy could even dip into recession. Less spending and more saving is just what America needs to reduce its current-account deficit, but for American households used to years of plenty it will hurt"

So, the question is - is it tightening money that dampens the franchise buying market or does it spark a recessionary boom? I wonder if the recession isn't what causes the availability of franchise investors but the low-cost of loans of a government lowering interest rates to spark economic recovery.

If that's the case, then predicting franchise-buying is simply watching interest rates and new business start-ups.

At the bottom of the recession, you get the best of all worlds for franchise development. There is the largest number of outplaced workers and the government lowering interest rates to spark economic growth.

The ball begins its ascendency. 

I wonder what the numbers say?


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