Yum! Brands announced a plan to sell off hundreds of corporately owned KFC, Pizza Hut and Taco Bell restaurants in the U.S. to franchisees, to raise capital to fund expansion in faster-growing markets overseas. Burger King recently made a similar announcement, and Applebee’s International is in the midst of selling units to franchisees as part of a push by parent DineEquity to raise cash and cut liability.
It’s not uncommon for mature chains to cut back on ownership interests and rely more on franchise operators, but the practice raises the question of how franchisees finance the purchase. While some companies created programs during the downturn to help franchisees defray startup costs, it’s still tough for many small businesses as banks continue to look for reasons not to grant credit.
On the flip side, credit unions want to loan more money than they’re legally allowed. Hence, Senate Bill 2231. The bill, also known as the Small Business Lending Enhancement Act, would let a credit union lend as much as 27.5% of its assets, up from 12.5%.
Credit union lending to small businesses increased 44% during the past four years as entrepreneurs widened their search for funding as banks cut back, while a government program created specifically to boost bank lending was 14% loaned out after the first year, according to a report in the San Antonio Express-News.
The average credit union loan is about $220,000, making credit unions ideal for would-be restaurateurs and franchisees. That seems to make a measure that would fill the lending pool with $13 billion a no-brainer. Indeed, the bill, sponsored by Sen. Mark Udall, D-Colo., has bipartisan support, and it seemed it would come up for a vote in April. Then, the vote was delayed after Senate Majority Leader Harry Reid, D-Nev., determined it wouldn’t have the 60 votes needed to avoid a filibuster, Crain’s Detroit Business reported.
What’s the holdup? The same thing that killed a version of the bill last year. Lobbyists for those same banks that have made it tough for small businesses to get financed are pushing back against the bill, claiming it would create unfair competition because credit unions are nonprofit organizations and not subject to the same federal rules and taxes as banks, according to several media reports, including a story in Restaurant Hospitality.
Supporters of the bill hold out hope that it still might pass this year. “We think we’re very close, and as soon as we get the requisite numbers, it will come to a vote,” David Adams, president of the Michigan Credit Union League, told Crain’s.
Do you think the business-lending picture brightened any in recent months? Tell us in the comments.