Jobs are still scarce, so the unemployed are reinventing themselves and becoming the majority of new franchise owners, industry sources say. The troubles in commercial real estate are making it easier by driving some landlords to negotiate — sometimes offering several months' free rent or paying for remodeling.
While banks continue their tight grip on lending, some franchisors are seeing a dip in investors and are responding by lowering fees and offering internal financing deals. But without a loan, a home-based franchise becomes an affordable option for those wanting a fresh start on their careers. Areas that are expected to increase in popularity: quick-service restaurants, real estate, senior care, eco-friendly businesses and health.
"When the economy slows, people think opportunities become harder to find," said Jason Mattes, a franchise development adviser in Coral Gables. "If you have an entrepreneurial spirit, now could be the best time."
Mattes is director of franchise development at Cruise Planners, where the fee is about $10,000 to start the home-based travel agency. Cruise Planners has added 200 new franchises in 2009, with 52 new units in Florida.
"I think people just aren't aware of all the opportunities out there," Mattes said. "They think of a Subway shop or a hamburger joint, so they feel it's not a path to look at because it's just too expensive."
• • •
MatchPoint franchise consultant Jim Sebastiano is advising people without a nest egg to head for home-based businesses because of the credit crunch. He has seen investors use their 401(k)s or IRAs to help finance stores.
There are more than 3,500 different franchises available, but Sebastiano found most people he speaks to can only name 15 from memory.
"Don't pooh-pooh any business until you do a little bit of research," Sebastiano advises. "At least know what you said 'no' to."
• • •
West Palm Beach resident Lisa Simpson, 47, reached out to a consultant after it became "mind-boggling" trying to sort through every option.
Simpson worked in banking for 26 years, and when her bank was recently acquired, she took a severance package to jump-start her dream of running a business. She filled out a franchise personality profile questionnaire to narrow her search. Her result: the painting business.
"I said, 'Painting? Really?' But the more I started looking into it, they had 300 franchises doing this, and they had a lot of training and support," Simpson said.
After paying $50,000 for the franchise fee, and an additional $20,000 toward direct mail, software and putting a logo on her truck, she now runs CertaPro Painters with her husband. It all came from her personal savings and that severance package — and she's hoping she doesn't have to dip into her home equity.
"Normally franchise businesses do quite well during recessions," said International Franchise Association spokeswoman Alisa Harrison. "This time it's different because of the available financing," Harrison said. "We actually ended up a little bit better in 2009 than what our forecast said, but it was still down because of financing."
• • •
Even experienced franchisees are having trouble getting loans. Raj Patel and his partner Rudy Puig have owned five Cold Stone Creamery shops in South Florida — opening their first in 2004 — and invested in a Panchero's Mexican Grill right before the economy went sour. Their Panchero's in Miami opened in January, but they had no loans to help with the costs.
"You could click your finger and say 'I need a loan' and pretty much it would happen. Now it's impossible," Patel said. "I approached at least five to six banks, and none of them wanted to do it."
Franchises began to fizzle in 2008, after growing by more than 40 percent since 2001. The IFA predicts 2 percent growth for 2010. Hotels are the only group that will continue to lag, but the categories of quick-service restaurants and real estate are supposed to see the biggest growth.
Other hot growth areas getting attention: anything dealing with senior care, being green and health.