“I don't think there's any question about it. Things have gotten more difficult,” declares financial consultant Jim Parish of Parish Partners, in Vancouver, Wash. “Terms are tightening, or for some, vanishing altogether.”

“Credit markets unable to provide terms acceptable to franchisees are probably the biggest concern we have about our development,” worries Dusty Profumo, chief financial officer for Atlanta-based Church's Chicken. “We think it's something that will surface later this year.”

“If you are building a brand new store, you need more equity than in the past,” warns longtime franchisee Roland Spongberg, who operates 52 El Pollo Locos and four Denny's in California and Arizona. He recently agreed to open 15 Corner Bakery Cafes over the next seven years.

So far Spongberg, who plans to open eight restaurants this year, isn't worried about raising the capital he needs to grow. “I've grown by making money restaurant by restaurant,” he says. “I take that money and re-invest it, and it has worked great.”

Still, he doesn't seem as eager to put his capital at risk next year. “We've started the process of slowing down in '09. A pipeline doesn't run off and on as quickly as you'd like,” Spongberg says.

Although the current downturn has hurt sales and guest counts, it has yet to seriously disrupt franchise growth at most chains. “Unless things get worse for a lot longer, I don't know that you'll see anyone changing [franchise] fees or royalties,” offers Kerens, Texas-based consultant and former Ponderosa President Frank Steed.

But he can imagine a scenario today in which a franchisee calls a franchisor to say, “I don't want to open those four stores in this economic climate. I'm only going to open two stores until we come out the other side of this.”

Renegotiating agreements can get sticky, often taking the focus off operations. “It's a brain drain on the company,” Steed adds.

Even though such conversations aren't currently the rule, roiling credit markets have put franchisors in the uncomfortable position of wondering whether qualified franchisees will find appropriate financing.

“The credit standards banks are using are changing, and they are changing quickly and day to day,” says Darryl Johnson, president of Frandata, a franchise information database headquartered in Arlington, Va.

Such volatility is forcing some franchisors into an unfamiliar role. Take Chris Cheek, vice president of franchise development for 277-unit Bruegger's Enterprises, a chain of sandwich shops based in Burlington, Vt. “Do I anticipate the credit crunch impacting some existing franchisees' development schedule? I think it will,” he says.

So since last August he has been promoting the concept to lenders as well as to potential franchisees. Talking points include the franchisor's experience, unit economics and the stringent application process.

Not that his efforts have always helped. “Some lenders have gotten even more risk adverse since last August,” Cheek says. “Your credit didn't have to be stellar. Now that's become top of mind for some.”

Parish says it's not uncommon for franchisees to discover lenders demanding two or three times as much equity as they would have required 12 to 15 months ago—though small franchisees that open one or two locations still have recourse to government-backed programs like the Small Business Administration.

It's a far cry from two or three years ago. Then, the widespread availability of credit made it easy to sign up franchisees. Easily franchisable categories like bakery-cafes, sandwich and Mexican grew wildly, eventually battling each other for market share. Those with disciplined franchisors, like Panera Bread, thrived; others, like Baja Fresh, lacking a sound game plan, ended up in tatters.

“We went through many changes in the concept which were not positive for top-line sales,” says franchisee Steve Pettise, who recently sold an underperforming Baja Fresh unit in Chico, Calif.

Wendy's unloaded Baja Fresh in fall 2007 after a four-year effort to revive same-store sales faltered. An investment group led by West Coast operator David Kim bought the fast-casual concept for $31 million, far below the $274 million Wendy's paid to acquire it in 2002. Today Chief Development Officer James Walker maintains current Baja Fresh franchisees and applicants are not having problems accessing capital or meeting development goals because “it's a premium concept.”

Some see a silver lining in current conditions. In early March, Ruby Tuesday founder and CEO Sandy Beall told a group of investors that restaurant closings are a good thing in an oversaturated market. “You already see it. We hear about it in the industry. And that's going to be great for the industry,” he declared.

It is apparently great already for Buffalo Wild Wings. Franchise royalties and fees at the Minneapolis-based sports-bar chain swelled by 19 percent last year, to $37 million. “Today our franchisees are already capitalizing on this downturn,” says Mo Sawda, vice president of development. “They have more choices where they want to develop because maybe of slow or stopped development elsewhere.”

That's not how other franchisors see it when it comes to their own franchise systems. Profumo, for example, says if push came to shove, Church's may reduce franchise fees, trim the store opening costs or ask lenders to soften terms on a case-by-case basis. “We haven't done any of that yet, but we might,” he says.

A benevolent approach to development works best, agrees former Baja Fresh CEO and current Yum Brands franchisee Greg Dollarhyde, who operates 88 Taco Bells and Pizza Huts on Hawaii and Guam. “You have to be very careful if you go to franchisees and push. All the others see it and will be very gun shy,” he warns.

Dollarhyde cites upscale Ruth's Chris Steak House, where comparable sales and guest traffic counts have remained negative since last year. “If I were advising [CEO] Craig Miller on whether to take away someone's development agreement because he didn't want to open store No. 3, I'd say give him some slack, give him time,” he says.

Adds Parish: “There are a lot of terms underlying [development] agreements, so there's room to maneuver, if the intent of both parties is to maneuver.”