Franchise Lawyer Blog

Current Concerns in Franchising

Credit and Cost of Heath Care Top Worries for Franchisors and Franchisees

The current U.S. economic downturn has lead to the loss of millions of jobs across the country; many of those jobs are not expected to return. Congressional leaders and the Obama administration have continuously expressed the need to put people back to work in order to get the economy back on track.

According to the International Franchise Association (IFA), business franchising is just what the country needs. But despite the opportunities operating a franchise presents, there are many challenges facing potential business owners. The IFA says individuals wishing to pursue franchise prospects may encounter hurdles such as a tightened credit market and unknown health care costs in the wake of the Patient Protection and Affordable Care Act of 2010.

Small Business Loans

The financial meltdown of 2009 and the resulting collapse of financial institutions across the country has subsided somewhat, but lasting effects still remain, including the so-called credit crunch. The IFA says that many banks are still reluctant to offer the types of business loans and lines of credit that franchisees need.

While banks may be struggling, the U.S. Small Business Administration (SBA) says financial help is still available. The SBA indicates that small business owners can still obtain loans and they, as a small-business advocate, are willing to help companies secure the capital needed to open a business or finance capital improvements. The SBA guarantees up to 75% of qualified loans. They have been very active in the franchising area. Frandata, a franchise information firm, maintains a Franchise Registry, which contains franchise agreements that have been pre-approved by the SBA and is referred to by many lenders.

Health Care Law’s Impact on Franchise Operations

The Patient Protection and Affordable Care Act of 2010 was signed by President Obama just over a year ago. The bill is intended to help facilitate “quality, affordable health care” for all Americans and businesses alike. We have written on franchising and the health care law previously.

Proponents of the bill say that companies that previously encountered difficulties providing health coverage for their employees due to high costs will now have the opportunity to obtain more affordable health insurance. Starting in 2014, small businesses and franchises will be able to shop for plans via purchasing pools. Allowing businesses to pool together lowers insurance premium rates.

Individuals who are unemployed, wishing to leave their current job or desire a more flexible earning potential are more likely to look to franchise opportunities if health care costs do not present a barrier to entry.

However, not everyone feels that the health care law will benefit small business owners. The IFA, in particular, is calling for the new health care law to be repealed.

The IFA President and CEO Steve Caldeira says, “The current law imposes excessive cost burdens onto the backs of small businesses which prevent them from growing and creating new jobs.”

The IFA believes the new health care will simply shift heath care costs onto small businesses such as franchisees. They say that because of the new employer mandates and funds needed to pay for the changes under the new law, small businesses will be required to pay more in either taxes or penalties.

It remains to be seen what hurdles, if any, franchise owners will encounter in the upcoming months.


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