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‘SBA Isn’t Helping’
Despite the easing credit market, some brands are still having trouble finding money to grow.
The loan crisis continues for small franchises.

When Anthony Russo ran into trouble attracting buyers to his 25-unit franchise, New York Pizzeria, he decided to try something different.

“I thought giving $10,000 toward the opening of a new store would be a tremendous help and a tempting offer,” he says. “But what good is $10,000 when [franchisees] can't get approved for a loan?”

With banks still recovering from a housing bust and volatile market, acquiring loans is difficult, especially for small operations like Russo's, where an investment is often deemed risky.

Such was the case for Allyson Huston, a Texas transplant from New Jersey, who pursued four banks over the course of almost two years before finding funding to open a New York Pizzeria location. She went to Wells Fargo and Wachovia where she was pre-approved for a loan at the start of 2008 and signed her lease soon after. Months later, finally prepared to start construction, she was denied.

“The banking rules changed and they reevaluated the loan,” she says. “They decided I didn't have enough cash to match it, which I didn't understand. If I had that kind of money to begin with, I probably wouldn't need a loan.”

She was eventually approved at Houston's First Bank in March 2009. “They gave me a loan in three weeks and the Small Business Administration (SBA) loan went through without trouble.” 

Russo says Huston's problems getting a loan reflect what small-business owners are experiencing nationwide. “The banks aren't funding, and the SBA isn't helping,” he says.

In March the House Committee of Small Business approved earmarks totaling $17.5 billion dollars for the SBA's 7(a) program, the most commonly used loan by small businesses. While a productive step for the small-business community, the measure leaves business owners like Russo wondering when funds will begin to trickle down.

“It's a misconception we're just sitting on money, says Mike Stamler, director of public affairs at the SBA. “In fact the reason loan numbers are so low is because of the recession, and since the Recovery Act was passed lending is up 46 percent.”

Stamler says the SBA guarantees more money each week and that loan volume has increased since mid-March.

The banks aren't funding, and the SBA isn't helping.

In the mean time, he says, banks have grown more confident in lending practices because of recent changes made by the administration. “We raised the guarantee of each loan by 90 percent and eliminated the fees that borrowers have to pay,” Stamler says.

He was quick to clarify, however, that the SBA does not distribute funds for loans. Instead that responsibility falls squarely on lenders. “SBA continues to guarantee loans to the restaurant business,” he says.

While loans may be guaranteed, that doesn't mean the road to approval is an easy one.

“I want our Senators in Congress to know that banks aren't lending,” Russo says. “I don't think they know what the real world is like. There are a lot of franchises going through what I'm going through.”

Lakiesha R. Carr is QSR's online exclusives reporter.