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Lending slowdown puts chill on potential franchisers

Wireless Zone executive Sean Fitzgerald, left, chats up a prospect at the International Franchise Expo.
Wireless Zone executive Sean Fitzgerald, left, chats up a prospect at the International Franchise Expo. (Nicole Norfleet - Nicole Norfleet for The Washington Post)

"We've never done financing before," he said. "Never had to until the meltdown. There are so many good potential franchises out there that are just having a hard time."

Lately, the company has encouraged new franchise operators to work from home instead of being burdened with the cost of an office, at least until the economy recovers and demand for home improvement services grows.

The economy hasn't hurt all franchises.

Wireless Zone, a retail franchise for Verizon Wireless products, has about 25 local stores. Last year was a record growth year for the company, with about 100 new store openings nationally, said Sean Fitzgerald, Wireless Zone's national vice president of franchise development. Fitzgerald attributes the growth to low initial investment costs and the thriving wireless industry.

"Even if people are downsizing on their houses or their cars or anything, they are not cutting back on their cellphones," he said.

Wireless Zone is offering to finance half of the franchise fee for newcomers, he said. Verizon Wireless also is offering $25,000 to put toward marketing costs.

Mario L. Herman, a D.C.-based franchise attorney, said the current credit climate has forced franchisers to be more responsible for their franchisees' success, which in turn will help the entire market. In the past, Herman joked that anybody whose check cleared was allowed to open a franchise. With the credit crunch, franchisers have had to be more realistic in their selections and ultimately put their money where their mouth is, he said.

Franchisees also have to go into the business with realistic expectations, Herman said.

"Franchising is not a ticket for riches," he said. "For most people, it is just buying them a job, and a low-paying job at that."

Herman advises people interested in joining a franchise to review in detail what financial assistance franchisers are providing and how many franchisees in that company have failed. He also suggests reading every detail of the franchiser disclosure document and contacting former franchisees.

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