Franchisee Use of Bootstrapping: An Exploratory Study of Financing Decisions

Cecila M. Falbe, Ajith Kumar, Dianne H.B. Welsh

Abstract


According to the Census Bureau report in 2010, franchising accounts for 10.5% of businesses in the U.S. Despite the economic impact of franchising, little research examines financing decisions by franchisees in the startup phase of their businesses. We examine the use of debt financing, primarily bootstrapping, by franchisees to fund their businesses in the earliest stages of operation. The research analyzes data from the Kauffman Firm Survey (KFS), and we develop an exploratory model of franchisee activity. Consequences of the lack of loan availability will have detrimental effects on the success of franchise startups. Implications for practice, policy and future research are discussed.

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