Papa John's and many other U.S. franchises are seeing growth as people take their job security into their own hands. Image from Wikimedia.

The number of consumers using installment loans to fund their own franchise is steadily increasing.  In a market where people are no longer sure of their jobs, many people are venturing into business ownership to build their own futures.  For example, Jon McIntoch of Philadelphia found himself laid off for the fifth time in his 30-year career as a banker.  Rather than leave his future in the hands of others again, he tapped into his 401(k) and opened his own business that provides home health care to those in need.   McIntosh is now one of America’s 1 million, and growing, franchise owners.

Franchises have grown tremendously in the past decade, and have developed new respectability within the job market.  Franchised businesses make up 11 percent of the US private-sector economy and receive 41 percent of retail spending.  Part of their popularity can be attributed to their simple premise. People can be their own bosses, get the training and support they need,  receive financing, and have help with marketing all along the way.  In January of 2009 a Franchise Expo was held in Miami and proved that the franchise business is here to stay.

The growth of the franchise

Steve Olson, publisher of Franchise Update Media Group, stated, that “in recessions, the number of franchises has actually grown faster than it has in good times.”  Between 2001 and 2005, franchises expanded 18 percent in the U.S. and rose to 900,000.

The business sector has also experienced a change in public perception.  In the past, many people equated the word “franchise” with a tacky and unprofessional business.  Those ideas are quickly changing.  Wayne State professor Timothy Bates stated, “There is absolutely no difference in the success rate or longevity of independent entrepreneurs versus franchises.”

New franchise owners

It’s no wonder the economy has given birth to a new generation of franchise owners. Many people have been burned by the recession with lay-offs, pay decreases and losses of home value.  Bates added, “People who have suffered in the economy, which is just about everyone, want to find ways of making themselves immune to future disasters.  They want to take their jobs into their own hands, and franchises can be a safe way to venture into being an entrepreneur, but having a firm plan with full support.”

Consumers are looking to venture into franchises more and more. And with the standard franchise fee being anywhere from $5,000 to $50,000, it’s a reasonable aspiration for many.  Consumers are using installment loans, family loans or traditional bank loans to handle the cost. The return is priceless because it empowers them to know that they have a say in their future.

Businesses of the future

Many experts insist that businesses of the future will be more self-owned.  Trade journalist Olson insists that the “new number of franchises will explode in this recession, provided would-be Subway and U-Haul lot owners can get financing.”

Financing seems to be the biggest deterrent to consumers.  Many are determined to make it work, however.  As Clifford Brant, new Papa John’s Pizza owner, stated, “I will do whatever it takes. I am not going back to being an employee who can lose his job at a moment’s notice again.”

Even if financing options aren’t easily had, consumers will use installment loans  and family help to make their dream of stable employment happen.

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Old Country Buffet filed for Chapter 11 in January 2008, but emerged with reduced debt in April 2009.

People say recession sparks innovation, creativity, responsibility, and all other sorts of optimistic-sounding things. It also causes failure, collapse, bankruptcy and all other sorts of apocalyptic-sounding things.

It also causes complications, such as leaving franchise owners to figure out how to deal when their parent company goes bankrupt. Sometimes the parent company manages to get back on its feet, and sometimes it shuts down. Either way, the franchise owner is still responsible for his or her store, and left with the decision of what to do when selling a tarnished brand.

CNN Money published a list of franchises that went bankrupt since the recession became official. Some came back and some didn’t.

Mrs. Fields Famous

The Mrs. Fields Famous brand, based in Salt Lake City, Utah, is the parent to 1,200 Mrs Fields Cookies and TCBY stores. Last August, the company filed for Chapter 11.

Lucky for the franchises,  which continued to operate throughout the bankruptcy proceedings, only a couple of months later,the company was on the road to recovery. I don’t know if they  used private money lenders or what, but it  managed to restructure its $196 million in debt down to $50 million.

Cork and Olive

Small Florida parent company Cork and Olive wasn’t so lucky. Cork and Olive, which was made of eight company stores and nine franchises, filed for bankruptcy in June 2008.

The company stores shut down, but the franchises are still soldiering on. CNN Money reports that “the franchisees meet regularly to discuss how to keep their brand alive without the parent company.”

Bennigan’s

Texas-based family dining restaurant Bennigan’s filed for Chapter 7 bankruptcy — that’s right, the bad kind — in July 2008. All of the corporate locations were shut down. CNN Money says:

Its 138 franchisees were left in PR hell, struggling to convince patrons that they were still open for business.

However, private equity firm Atalaya Capital company acquired the brand in October and reopened the corporate stores quickly, many of which are now operated as franchises.

Bally Total Fitness

This gym just can’t seem to catch a break. The nationwide franchise, based in Chicago, has filed for bankruptcy more than once. CNN Money reports:

It was a déjà vu for the health club chain in December 2008 when it filed for Chapter 11, a mere 14 months after emerging from its first Chapter 11 filing in July 2007. Just weeks ago, Bally signed an agreement to emerge from bankruptcy by restructuring the $1.5 billion in debt it had accrued and by granting 94% of the company’s equity to lenders such as J.P. Morgan.

Fatburger

This one gets a little complicated. Two subsidiaries of Fatburger Corp, Fatburger Restaurants in California and Fatburger Restaurants in Nevada, filed for bankruptcy in April. However, parent company Fatburger Corp. did not file for bankruptcy. Confusing matters more, that parent company, Fatburger Corp., is based in California.

Furthermore, Fatburger Restaurants in California and Fatburger Restaurants in Nevada accounted for 72 percent of Fatburger Corp’s total revenue. So what now? Good question. CNN says “The company’s 90 franchise owners are waiting to see what happens next.”