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Demand For More Franchise Units Expected To Rise 5.7% In 2013

According to the March 2013 Small Business Lending Matrix and Analysis from FRANdata, the franchise business climate is improving for the fourth consecutive year. Demand from both new prospects and existing franchisees is expected to increase moderately in 2013. FRANdata projects a demand for more than 65,600 unit transactions this year, including new, transfer, and refranchised units. Collectively, this represents an adjusted 5.7 percent increase in demand over 2012 and an adjusted 16.9 percent increase over 2011. If franchise performance meets expectations, these transactions will create more than 883,600 jobs for the U.S. economy.

As shown above, demand for new units from existing and new operators is expected to rise again in 2013. To meet this demand, operators need over $40 billion in total capital. Some of this capital will come from the operators themselves as they invest equity in their franchises. The remainder, however, will come from bank loans. Over the past three years, estimated franchise borrowing needs have been above and beyond actual lending and, in 2013, that gap is expected to become even larger.

As the graph demonstrates, the increase in the gap is not due to expectations of reduced lending. Lending is actually estimated to increase this year enabling more franchise unit transactions. However, demand is expected to rise even faster. In total, the expected shortfall in the supply of capital is 9.7 percent, up from 9.1 percent in 2012. This gap translates into 6,400 unit transactions foregone.

To learn more about the Small Business Lending Matrix and Analysis, read the full report here.

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