International Franchise Association CEO Robert Cresanti joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Sibile Marcellus to discuss the impact the coronavirus has had on the reputation of franchises.

Video Transcript

- I want to welcome Robert Cresanti. He is the president and CEO of The International Franchise Association. And Robert, thank you for being with us. We know that restaurants are really taking a huge hit here. Restaurants are also small businesses. Many of them are franchisees. And you have a dire prediction. You say between 20,000 and 30,000 franchise small businesses could go under in just 45 days. What do you want to see from the government to help these businesses stay open?

ROBERT CRESANTI: Thank you so much. It's a pleasure to be with you. This is a historic day for us. We are seeing an incredible amount of action taking place today. We've been working 18 hour days for the last eight or 10 days, pushing through trying to make sure that a relief package comes forward from the federal government to aid the small businesses.

Just over 40% of my membership is in the restaurant space and in the small business of food and carry out type space. The other 60% is in the services space, which was equally affected. Very, very difficult times for these folks. They're operating on thin margins. And I know a number of them last week were still holding out for the Senate to take action this weekend, and I would expect just as we're seeing with other public announcements, that more and more people are laying staff off at this point.

And so if Congress does not act, we're going to be in a recovery operation as opposed to a lifesaving operation for these businesses.

- Well, Robert, good to talk with you. What's the worst case scenario looking beyond 45 days for the franchise community?

ROBERT CRESANTI: Well, I mean, every day, every minute, we're seeing the worst case scenario take place for individuals in their local locations. From small business owners individually out there to the individuals that have been laid off from their positions already, and those that will be laid off this week. We are in incredibly difficult hard times. And you-- I think you have some of the data that our economists have pushed forward.

But we have 766,000 individual franchise businesses in the hospitality restaurant and personal services sectors, which have been the hardest hit by this virus. In many places, just completely shut down.

- So give us a sense of what's happening behind the scenes. We know that President Trump spoke with restaurant CEOs from Subways, Chick-fil-As, a bunch of others, the McDonald's US president. What has he been saying behind the scenes? Has he only been telling you guys to keep drive-thrus open? Have you said anything about why the stimulus package hasn't been approved yet? What can we learn from that?

ROBERT CRESANTI: The call was several days ago. I was on the call with many of the brand presidents that you just mentioned of the largest brands that are out there. And they offered to the president whatever latitude, whatever support he can get from our brands, whether it's the use of parking lots or other services or devices that we may have available through the takeout windows, whatever he needs from us.

The administration has been exceptional. Secretary Mnuchin has been exceptional. I spoke with him for almost 30 minutes Saturday night at just after 11:00 PM. So I don't know how the people are holding together at this point, because I know they're also working very hard.

My real concern at the moment is that these political discussions are getting in the way of acting fast. And every day, every minute counts here. I can't say it emphatically enough. I've told that to the President. I've told it to Mnuchin. And I-- we've spoken with our democratic members of Congress and their staff, as well.

So we're urging speedy action. Don't let politics get in the way of this.

- And, Robert, we know that this stimulus package sitting before lawmakers right now includes $300 billion in relief for small businesses. Still not quite clear on what that entails. What would you like to see in that? Are we talking about forgiving loans going forward? Are we talking about giving these franchisees enough money to continue to keep their payroll at status quo while they work their way through this pandemic?

ROBERT CRESANTI: Thank you. The government, I think, has taken the direction of utilizing the local employers as best as possible to keep those paychecks alive and humming for their employees. The challenge with that system is that when you have a week of no one walking into your store, you end up with no revenue. You shut down. And even your bookkeepers begin to go home.

People are already initiating these layoffs in the cities. And so I can't say emphatically enough that whatever the program is that they decide to do, and they're doing-- they certainly have enough cash behind it-- I think we're going to have to rely on these mechanisms to-- and hopefully that the money will become quickly available, too. Because having a program that takes seven to eight weeks for someone to apply for a loan will not pay for their bills and their mortgage and their inventory today.

And so these are the challenges that we're trying to bridge with them. And we're open to every alternative, because we're just at such a crisis state at this point.

- How much money would actually help you get through this crisis? Is it $300 billion? Do you need it all in liquidity, or would loans with zero interest help you? What exactly can get you through this?

ROBERT CRESANTI: Yeah, I think like I said, all of that is open. The trouble is in a business that has a very thin margin like these small businesses in these food concessions, often have gyms, other places-- very, very thin margins where a lot of the amount of money is tied up into the employee pool and paying for the mortgages and the rent and the infrastructure. You have an incredibly narrow window. So taking out a large loan and then trying to repay it in a business that might have a 4% to 6% margin takes an incredibly long amount of time. And it wouldn't make business sense in the long term to repay some of those.

So I think that the government needs to appropriate the monies. It needs to figure out very quickly as to how it treats the different levels of lending. Larger businesses may be able to repay those loans in a different manner. There might be some loan forgiveness. I think those are all in the bill and in various different formulas.

The overall amount of money is something I think that is sufficient at the moment. The other issue that concerns us tremendously is there's a tremendous focus on the small businesses. And there's a tremendous focus on the very largest companies. And our challenge is, how do you keep the folks in the middle going?

So there are franchisees that have a large number of units where they have over 500 employees. Well, they might be exempted from portions of our original thinking of this legislation. So their margins aren't any bigger than the little guy's margins. They might be able to stay in business for a little while longer.

So getting those loans in place and figuring out what the qualification criteria are for each of them are going to be-- is going to be very important. And I don't think that Congress needs to solve that issue right today. I think that you have smart people inside of various different agencies that can help lay this out. And I really want to encourage public private partnerships, the utilization of financial institutions, and insurance companies is a key thing.

The other thing-- and this is the last I'll say on this, but you asked me about President Trump's comments earlier. There are so many of our businesses that are on the front lines, as well. If you look at the UPS stores that are taking returns and moving goods around the United States at the moment, they're franchised businesses. Janet King and some of the largest cleaning companies in the United States, they're sterilizing waiting rooms and hospitals and businesses where people have come in that may have been diagnosed with the coronavirus. So there's a lot at play at the moment.

- All right. Robert Cresanti, CEO of The International Franchise Association, best of luck to you and to your members. Thank you.