For franchisees, a new lender steps up to bat

NEW YORK (CNNMoney.com) -- A new player is charging into the arid landscape of banks willing to lend to franchise operators. Bancorp Bank, based in Wilmington, Del., said this week that it will launch a new program specifically targeting startup and expanding franchises.

Bancorp plans to limit its program to 30 yet-to-be-selected franchise brands with "measured performance and experience within their operations," and will make its loans through the Small Business Administration's guaranteed lending programs. The bank is partnering on the effort with consulting group Franchise America Finance, a newly launched subsidiary of Siegel Financial Group.

"We got together because we saw a vacuum of capital access to small business," said Nathan Greenberg, one of Franchise America Finance's three founding partners. "We expect to have brands coming on board in the next 30 days."

Bancorp didn't put a dollar figure on its new lending program, though it said it intends to build a "significant" SBA lending portfolio. Recent hire Dianne Gallion, an SBA lending veteran who most recently ran Banco Popular's small business loan programs, will head the initiative.

"Bancorp Bank is very excited to enter the national franchise lending arena," Gallion said in a written statement. "We are focused on lending to only the best of the best in franchising, while helping the economy by stimulating job creation through a proven business model."

Lending crunch: The past year has been a grim one for franchise operators looking for financing. Lending to franchisees plunged 36% to $7.5 billion in 2009 from $11.7 billion in 2008, according to a year-end report from franchise research firm FRANdata. In 2010, the firm forecasts that franchise lending will contract even further, to $6.7 billion.

That's a far cry from the $10.1 billion that FRANdata expects franchise businesses to demand in the coming year. In its own economic research, PricewaterhouseCoopers forecast that the number of franchise outlets in the U.S. will rise 2% in 2010, topping 900,000.

"Capital access has become the number-one issue in franchising, impacting new unit growth, ownership transfers, and even unit renovations," FRANdata President Darrell Johnson said in a written statement.

One key player in the franchise lending field, CIT Group (CIT, Fortune 500), essentially disappeared from the market last year as it lurched toward its eventual bankruptcy. Once the SBA's most active lender and a preferred financer for franchisors like Dunkin' Donuts, the Melting Pot and Cici's Pizza, CIT originated only a handful of loans in 2009. That left many potential franchise operators scrambling to find an alternate lender.

Bancorp sees opportunity in that gap. The online bank holds assets of $2 billion, mostly commercial loans in the Delaware Valley area, but is looking to expand. SBA lending will be a new field for the bank, which has done little so far in the government-backed lending market.

The International Franchise Association, an industry trade group, applauded the move.

"This is a private-sector response to the failure of small business lending in the economy," said David French, IFA's vice president of government relations. "We have been working with the SBA, the Obama administration and Congress to drive some policy changes. Those changes have not moved as quickly as we would like. We are encouraged by the folks that see the need and want to get in and help provide franchise financing."