You may recognize dozens of brands representing these and the approximately 300 industries operating under a franchise model simply by spotting the ubiquitous logos.
Some of us may have even worked in one of the many key franchise businesses across the country.
Franchise businesses are a tremendous part of communities around the country – and this significant employment engine will continue to grow.
A Deeper Dive Into Franchise Lending
According to the International Franchise Association’s 2023 Franchise Economic Outlook, there are more than an estimated 790,000 franchise businesses across the United States. That translates into more than 8.4 million jobs.
In December 2022, Regions Bank announced the launch of its Franchise Lending business, led by industry veteran Peter Salas. Salas joined the bank in the fall of 2021 to begin building out this specialized business group to enhance Regions’ support of small-business owners.
A banker for more than 38 years, Salas shifted his focus to the franchise industry 15 years ago.
“I really got passionate and found purpose when my father passed away,” Salas shared. “He was a serial entrepreneur, starting a business and seeing it fail, starting another business and seeing it fail. The lessons I learned looking back were that my father lacked the structure, ongoing training, marketing and other support that creates success in business.”
Salas said that he found that franchising is a good fit for those entrepreneurs who want to work hard, make a decent living, and can follow and believe a proven model or concept.
“My purpose is to help others become successful in franchising, so they don’t have to go through what my father went through.”
Reflecting on his first 18 months with Regions, Salas shared that it has been a whirlwind, having to essentially build a new lending practice from scratch. The team he has built from the ground up now has four specialized bankers that partner with Regions’ bench of commercial bankers, Small Business Administration (SBA) Lending bankers, Ascentium Capital, Treasury Management and more to offer franchise owners the full suite of financial services to help power small businesses.
My purpose is to help others become successful in franchising.
On the Air With Franchise Lending
Based in Houston, Texas, a key growth market for Regions, Janean Germany joined the Franchise Lending team in March. She recently appeared as a guest on Regions Business Radio, a podcast powered by Business RadioX in Houston and hosted by Regions Houston Market Executive and Commercial Banking Leader John Stacy.
“Texas is the fastest growing state for franchise,” Germany noted on the podcast. “With Houston being the largest city in the state, this market is ripe for growth and opportunities in the sector.”
According to Germany, the typical franchisee will often need a credit product.
“Eighty percent of franchisees typically utilize an SBA loan, though some may qualify for a conventional financing product,” said Germany. “They also often need innovative treasury management products and capabilities to manage cash flow. At Regions, we bring our whole team to the table to ensure that our clients have the right mix of financial products and capabilities to fit their unique needs.”
One unique offering at Regions is Ascentium Capital, an equipment finance subsidiary that is known for its quick decision making and access to capital often needed by small businesses seeking to upgrade or renovate their brick and mortar locations.
Germany noted that a lot of franchisors may often have relationships with several different types of banks and SBA lenders.
“Most of the SBA lenders they have relationships with are lenders who are non-bank lenders, who sell in the secondary market,” said Germany. “So, they’re pricing those loans very high. It’s an opportunity for franchisees to consider a bank like Regions, where we don’t sell in the secondary market and where we’re able to offer that long-term fixed rate pricing at a reasonable rate.”
The SBA Landscape is Changing
Regions head of SBA Lending Caroline Taylor recently appeared on a panel with the International Franchise Association to talk about some of the changes the SBA has made in regards to franchises.
The SBA has issued a new SOP 50 10 7 effective Aug. 1, 2023. As part of the changes, the SBA will discontinue reviewing franchise eligibility and remove the Franchise Directory from the SBA site.
“These are critical drivers that lenders use in underwriting and brand selection,” said Taylor. “We will continue to work closely with our franchise lending team and franchise vendor to ensure we are continuing to support our customers through the SBA process.”
We will continue to work closely with our franchise lending team and franchise vendor to ensure we are continuing to support our customers through the SBA process.
Southeast Growth is Strong
In a recent conversation with members of the Franchise Lending team, Patrick Ellis, senior franchise banker, pointed out that the top four markets poised for growth sit within the Regions’ 15-state footprint, with a concentration in the South and Southeast regions.
“The Southeast region is poised to have the largest growth, specific to franchise, in the nation, and is followed closely by the Midwest,” said Charlie Frasor, senior analyst on the Regions Franchise Lending team. “It is incredible that within those two regions there are a combined 4.54 million people employed, with more than $441.9 billion in franchise revenue.”
In addition, eight of the top 10 biggest growth markets in the U.S. are served by Regions.
“Illinois is forecast to have the highest growth factor rate of about 6.6 percent, with Texas having the second highest, South Carolina is at 4.3 percent, followed by Florida at 3.9 percent,” Ellis shared.
He went on to note the impact these numbers have on employment, especially in retail and food services as well as business services.
“Growth for that particular segment of the market as you look at retail food services, we’re seeing 169,000 new jobs being added with about a 3.6 percent growth year over year,” said Ellis. “New jobs being created in personal services have seen about a 4.7 increase, and the last one would be the focus on is the business services category, which is about 102,000, new jobs, or 5.2 percent growth for that specific segment of the market.”
We are a relationship bank and really get to know our clients’ businesses, their financial goals, and have helped numerous franchise owners solve for their pain points.
Patrick Ellis, Senior Franchise Banker for Regions
Headwinds Remain on the Labor Front
Finding talent to staff these growing businesses remains a challenge as franchise businesses are not immune to the labor market shortages.
“Franchises are seeking candidates who have the experience and expertise to drive their business models forward, so attracting and retaining the employees is key,” noted Ellis. “At Regions, we bring in our Next Step Financial Wellness team to showcase the financial education offerings available to business owners through the Regions relationship. It is a fantastic tool for employee retention.”
The Franchise Lending team will continue to grow as Peter is seeking to hire additional in-market bankers to support small-business owners with a collaborative approach with teams from throughout the bank delivering the Regions360 model.
“We are bringing in the partners and offering a full suite of solutions,” Salas said. “From Treasury Management, fraud prevention and more. We are a relationship bank and really get to know our clients’ businesses, their financial goals, and have helped numerous franchise owners solve for their pain points.”