A study of franchise loan performance in the SBA loan guaranty programs.Many franchise businesses take advantage of the loan guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant. programs offered by the U.S. Small Business Administration. This report, conducted by FRANdata on behalf of the IFA Immunofluorescent assay (IFA) A blood test sometimes used to confirm ELISA results instead of using the Western blotting. In an IFA test, HIV antigen is mixed with a fluorescent compound and then with a sample of the patient's blood. Educational Foundation, examines franchise loan performance compared to non-franchise businesses during the period 2001 to 2006. The IFA Educational Foundation engaged FRANdata Corp., an Alexandria Alexandria, city, Egypt Alexandria, Arabic Al Iskandariyah, city (1996 pop. 3,328,196), N Egypt, on the Mediterranean Sea. It is at the western extremity of the Nile River delta, situated on a narrow isthmus between the sea and Lake Mareotis (Maryut). , Va. based research firm, to conduct a study on franchise loan performance in the U.S. Small Business Administration loan guaranty programs. The purpose of this study was to undertake a comprehensive review of SBA SBA abbr. Small Business Administration Noun 1. SBA - an independent agency of the United States government that protects the interests of small businesses and ensures that they receive a fair share of government loan information, and combined with FRANdata's internal database, to compare franchise loan performance to non-franchise loan performance. The SBA offers many loan programs to assist small businesses. It's it's 1. Contraction of it is. 2. Contraction of it has. See Usage Note at its. it's it is or it has it's be ~have important to note that SBA is primarily a guarantor guarantor n. a person or entity that agrees to be responsible for another's debt or performance under a contract, if the other fails to pay or perform. (See: guarantee) GUARANTOR, contracts. He who makes a guaranty. 2. of loans made by private and other institutions. Two of the loan programs used most by franchisors and franchisees are the 7(a) loan program, named after the section of the Small Business Act which authorizes the SBA to provide loans to American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of businesses, and the 504 loan program. All 7(a) loans are only available on a guaranty basis. These loans are provided by lenders who structure their loans by SBA's requirements and who in turn receive a guaranty from the agency for a portion of the loan. The guaranty is against payment default. The 504 loan program is a long-term financing Long-term financing Liabilities repayable in more than one year plus equity. tool for economic development within a community. It provides businesses with long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. , fixed-rate financing for major fixed assets fixed assets npl → activo sg fijo fixed assets npl → immobilisations fpl fixed assets fix npl → , such as land and buildings. Many franchisors and franchisees take advantage of the 7(a) and 504 programs. For the period 2001 to 2006, the SBA provided loan guaranties for more than 406,000 loan disbursals totaling more than $82.7 billion. Of this total, at least 25,744 disbursals were made to franchise businesses, just over 6 percent of all disbursals. Franchise businesses received loans of $7.9 billion, or 9.6 percent of the total loans. FRANdata used SBA franchise data for selected years (fiscal years 2001 to 2006). In addition, the company obtained non-franchise SBA data for comparative purposes. Finally, FRANdata appended additional data per franchise system to gain a more complete picture of results of any system. One important aspect of this study was to compare defaults and charge-off Eliminate or write off. The term charge-off is used to describe the process of removing from the records of a company something that was once regarded as an asset but has subsequently become worthless. rates by franchise businesses to non-franchise businesses in comparable industries. (The charge-off rate equals dollars charged off divided by the total dollars disbursed. The failure rate equals the number of loans in liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts. A type of proceeding pursuant to federal Bankruptcy plus the number of loans charged off divided by the total number of loans disbursed.) Here are the key findings-- * For the period 2001 to 2006, data show an average charge-off rate of 5.9 percent for all SBA loans in comparable industries and a slightly higher average charge-off rate of 6.5 percent for loans identified as franchise related. * Franchise charge-off percentages were higher than SBA total charge-off percentages in four years and were lower in two years. * Out of a total of 520 North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. Industry Classification System industries which had both franchise and non-franchise data, SBA franchise loans had a lower charge-off rate in 376 industries (72 percent), and had a higher charge-off rate in 114 industries (22 percent). These data suggest that loan performance varies greatly by type of business for both franchises and non-franchise businesses. * Some of the industries which had higher charge-off rates for franchises than for total SBA charge-off rates included gift/novelty, sporting goods Noun 1. sporting goods - sports equipment sold as a commodity commodity, trade good, good - articles of commerce sports equipment - equipment needed to participate in a particular sport , automobile automobile, self-propelled vehicle used for travel on land. The term is commonly applied to a four-wheeled vehicle designed to carry two to six passengers and a limited amount of cargo, as contrasted with a truck, which is designed primarily for the transportation of related, and hobby/toy segments (Note: These industries were singled out only if they had a minimum of $10 million in franchise disbursals). * After examining the charge-off rate of franchise loans to SBA total loans in the same industries, we have noted that although the data show a difference of 6.5 percent to 5.9 percent respectively, the difference is attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to a relatively small number of industries. Further study indicates that these are industries with a larger scope of operation and investment size, which would explain why a relatively small number of disbursals could affect the overall average. For example, by excluding 10 industries for which the most SBA franchise loan dollars were charged off, the franchise charge-off rate shrinks to 3.5 percent, compared to 3.2 percent for non-franchises. * By comparing specific franchise system unit levels to SBA data for the same systems, FRANdata determined that there may be significant under reporting Under Reporting An illegal practice where a person understates their taxable income. Notes: If caught under-reporting, you will be subject to penalties and, in extreme cases, criminal charges. See also: Audit, Loophole, Taxable Income, Tax Evasion of SBA lending which could affect any comparison of franchise loan performance to non-franchise loan performance. The SBA determines if a loan is a franchise loan when the business applying for an SBA loan or the lender LENDER, contracts. He from whom a thing is borrowed. 2. The contract of loan confers rights, and imposes duties on the lender. 1. The lender has the right to revoke the loan at his mere pleasure; 9 Cowen, R. 687; 8 Johns. Rep. 432; 1 T. R. 480; 2 Campb. Rep. identifies the borrower BORROWER, contracts. He to whom a thing is lent at his request. 2. The contract of loan confers rights, and imposes duties on the borrower' 1. In general, he has the right to use the thing borrowed, during the time and for the purpose intended between the as a franchise in the loan documentation. Because some businesses and some lenders do not properly identify borrowers as franchises, the number of franchise loans may be under-reported. (FRANdata is working with the SBA to address the under-reporting issue.) [ILLUSTRATIONS OMITTED] METHODOLOGY FRANdata sought out the largest sample size possible. The company used all available SBA franchise system lending activity over six years from 2001 to 2006, which totaled 1,710 franchise systems. FRANdata currently tracks information on more than 3,000 active systems. In this study it used all loan data identified by the SBA as being associated with franchise systems by industry. This provided a more complete SBA franchise data set than previously available. In addition, we were able to expand the date range to include disbursals after 2005 for comparative purposes. Based on the expanded data, we were able to compare, by industry, franchise loan loss compared to SBA total loan loss. In addition, in order to better pinpoint reasons for distinctions in the data sets, we examined year-by-year differences between franchise loan losses and SBA total loan losses. The report also examined those industries in which the franchise loan loss compared to the total SBA loan loss was the greatest.
Expanded Report Sample
DisbFY Naics NAICS_Description # Loans DisbGross
2001 722110 Full-Service Restaurants 2,230 $473,379,979
2001 722211 Limited-Service Restaurants 972 $196,451,704
2001 811111 General Automotive Repair 742 $139,904,339
2001 721110 Hotels (except Casino 707 $553,968,806
Hotels) and Motels
2001 447110 Gasoline Stations with 653 $340,353,872
Convenience Stores
2001 624410 Child Day Care Services 610 $166,198,662
2001 621210 Offices of Dentists 529 $152,000,993
2001 812112 Beauty Salons 508 $49,636,133
2001 621310 Offices of Chiropractors 497 $61,011,502
2001 621111 Offices of Physicians 412 $96,024,207
(except Mental Health
Specialists)
2001 812320 Drycleaning and Laundry 407 $109,670,247
Services (except Coin-
Operated)
2001 561730 Landscaping Services 399 $53,757,453
2001 445310 Beer, Wine, and Liquor 386 $86,139,480
Stores
2001 445110 Supermarkets and Other 377 $106,464,266
Grocery (except
Convenience) Stores
2001 235110 Plumbing, Heating, and Air 366 $71,752,088
Conditioning Contractors
2001 811121 Automotive Body, Paint, and 363 $93,465,268
Interior Repair and
Maintenance
2001 445120 Convenience Stores 339 $80,750,732
2001 713940 Fitness and Recreational 334 $77,414,829
Sports Centers
2001 235990 All Other Special Trade 334 $69,011,775
Contractors
Chart 1
Comparison of Number of Loans: Franchise Disbursals vs.
Disbursals to Other Companies
SBA Disbursals to
Franchises,
25,794, 6%
SBA Disbursals to
Other Businesses,
381,050, 94%
Note: Table made from pie chart.
Chart 2
Comparison of Dollar Amounts:
Franchise Disbursals vs. Disbursals to Other Companies
SBA Disbursals to
Other Businesses,
$74,800,000,000, 90%
SBA Disbursals to
Franchises,
$7,900,000,000, 10%
Note: Table made from pie chart
Chart 5
Charge-Off Comparison By Industries:
(Out of a Total of 520 Comparable Industries)
Industry Wide-Charge-Off Rate
was Lower, 114 Industries, 23%
Franchise Charge-
Off Rate was Lower, 376
Industries, 77%
Note: Table made from pie chart.
For additional information, contact IFA Educational Foundation Pres. John Reynolds There are several men named John Reynolds:
(networking) org - The top-level domain for organisations or individuals that don't fit any other top-level domain (national, com, edu, or gov). Though many have .org domains, it was never intended to be limited to non-profit organisations. RFC 1591. or FRANdata Pres. Darrell Johnson Darrell Dean Johnson (August 25 1928 - May 3 2004) was an American Major League Baseball catcher, coach, manager and scout. Johnson was born in Horace, Nebraska, and made his major league debut on April 20, 1952. at 703-740-4700 or djohnson@frandata.com. |
|
||||||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion