How Unused Credit May Lead to Rapid Franchise Expansion

JPMorgan Chase and Bank of America, the two biggest banks in the U.S., were reportedly pushing $1 trillion in unused credit at the end of June. That figure is 20% higher than a year ago, and it could have lasting effects in the immediate franchising landscape.

A Wednesday article by The Wall Street Journal explained how businesses are sitting on record amounts of credit, “another quirk in the economic recovery that bankers say could help unleash pent-up spending in the coming months.”

This pent-up spending could soon alter the immediate landscape of franchise investing.

“Companies aren’t actually drawing the money into their bank accounts just yet,” wrote David Benoit, banking reporter for The Wall Street Journal. “Businesses are already stuffed with cash, and supply-chain issues and labor shortages have crimped their ability to spend it. But bankers say the activity in recent months is evidence that businesses are planning to turn on the spending spigot. That could help the economy shoot higher."

Franchisors and prospective franchisees may choose to wait until the global supply chain alleviates and a domestic labor crisis clears up before developing new units. Once that happens, we could see the rapid expansion of brands from a range of segments. 

“Bank executives said their business clients have in recent months ramped up requests for credit lines that can be drawn quickly for spending on inventory, labor or expansions,” Benoit wrote. If these requests are any indication, the lasting effects in the franchising industry could be full of investment activity.

Unused credit may not lead to expansion in all cases. After the pandemic revealed how fragile certain operations are, businesses may treat their credit as a means to sustain current assets rather than develop new units. If existing franchises have a significant chunk of unused credit, they can treat it as their emergency reserve to manage a financial landscape that forced many to be cautious in the past year and a half.

Some franchises will seek to capitalize on new investment strategies, and this unused credit could have a hand in a new wave of urban revitalization that could yield hefty figures. If a franchisee takes a chance with an abounding reserve of bank credit, their investment could pay off now unlike ever before.