Eroding consumer confidence affects all housing, retail and franchised businesses. Franchised business need to adjust their expenses and expectations like all businesses, but they are uniquely leveraged in this economic environment. Franchise companies are able to leverage their brand during the credit crisis, which gives franchise companies additional tools, and risks, that their competitors may envy.
The credit crisis has forced banks and individual investors to reduce their leverage in their economic endeavors. Banks are required to shore up their balance sheets and reduce their customers’ borrowing capacity. The banks simply lack the capital to support their customers’ existing credit lines, and their customers’ collateral has lost value. The ubiquitous home equity loans no longer look very solid when the underlying collateral cannot be liquidated to satisfy the loan. As a result, banks require their customers have a proven equity cushion in order to extend new credit. Lower real estate valuations mean less ability to leverage the real estate collateral.
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