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How To Qualify For Franchise Financing In Canada A Franchising Finance Business Loan That Makes

What do I need to do to get to the goal line? That’s a favorite client question when it comes to franchise financing in Canada. We’re talking about a franchising business loan to finance your new business (or one that exists already which you’re buying).

Information. Solid info that you want on the qualifications and process involved in getting approved for your franchise investment. Let’s dig in.

To say that franchise finance is a ‘ specialty’ area of Canadian business financing is an understatement. There is a fundamental misunderstanding of how this type of finance works, the processes around it, and the risks that you can avoid by doing things properly… with some expert advice along the way.

Is there a systematic way, or method that Canadian franchisees can use to get the financing they need? We think there is. Essentially it is really two very simpe concepts, planning, and knowing the process. Simple as that.

Many new Canadian franchisee ‘ wannabees’ view financing as an obstacle. We can forgive those clients sometimes because in the last few years any type of business financing has been a challenge, whether you’re General Motors or purchasing a new franchise in the restaurant industry!

Many franchisees (mistakenly so) think the franchisor you are working with is either going to provide you with the financing you need, or in some cases at least steer you in the right direction. They might do a bit of the latter, but let’s be honest here; the franchisors job is selling franchises, not financing them. Even various banks and other franchise lenders probably would like to see franchisors being more involved in the franchising finance business, but we simply don’t think that is going to happen.

Education. And guess what, we are not talking about educating you, we’re talking on your need to be able to educate your franchise lender about why you are the perfect franchise financing in Canada candidate.

And who are the franchise lenders in Canada. That’s probably the main thing you wanted to know, isn’t it? There are 4 key franchise lenders in Canada. They are the Canadian chartered banks under a special program called the BIL/CSBF program , one or two very specialized franchise finance lenders ( they only do very large transactions ) , and thirdly some independent finance firms that offer equpment financing tailored specifically for the franchise industry .

But didn’t we say there were 4 lenders? We did. And we’re pretty sure you know that 4th lender already. It’s yourself, because your own equity portion or down payment into your business is viewed of course as a debt or a loan.

So whats the clear process in qualifying for franchise financing in Canada. Is there a clear road map you can follow? We categorically think there is. And here it is.

Identify the total franchise funding you need. Determine what amount of owner equity you are prepared to put into the transaction. Anywhere from 10 – 40% is typically required. Determine which of the 3 other methods of financing will allow you to cobble together a total solution to finance your new business.

Next step – prepare a package that includes a business plan, cash flow, info on yourself and the franchisor, with a focus on success and repayment of your debt. Along the way don’t forget that you need reasonable personal credit history, and boy does some specific industry experience or general business knowledge help in confirming your future ability to be successful for a franchise finance business loan.

Focus on the best financing that matches your needs; we strongly recommend the BIL program which has great rates, terms, structures, and limited personal guarantees.

Going it alone? It’s possible. A better idea? Speak to a trusted, credible an experienced Canada business financing advisor on information and help on franchise financing in Canada. Next step = ‘ You’re approved ‘!

Deciding On How To Finance A Franchise Canadian Franchising Business Loan Info On Financing And L

Not only do you want to have a solid plan when you want to finance a franchise in Canada – it sure helps when that plan makes sense for the business financing loan / loans that you need!

We think that most Canadian entrepreneurs who are either first time franchisees or perhaps are adding another location to their business would agree that its not as important as to where the franchise lending and business funding comes from, but that you get the full funding at terms that make sense for you personally .

Let’s examine some of those key decision points and requirements that you need to fulfill a proper franchise financing solution in Canada.

We think that a lot of franchisees are sometimes overly focused on ‘ the interest rate ‘ when they are seeking a franchise loan. That’s human nature we guess, but the reality is that the loan is simply commensurate with your overall credit quality and in line with the types of financing that are out their in the Canadian business financing market – unfortunately that market for new franchisees is somewhat more limited that in the U.S.

In Canada franchises are financed really in only 3 or 4 different manners — actually 5 we could say if you considered financing the whole franchise yourself through personal savings.

While that might seem a good idea we think in many cases it is not for a variety of reasons – i.e. collapsing personal investments and savings and assets when you don’t have to cant be an overall great strategy. We spoke awhile back to a franchisee who had pledged and used all his personal assets to acquire a franchise – business was slow, and he was unable to secure additional outside financing to re- boot the business because all his personal assets were pledged/gone. Bottom line, not recommended!

So the question then becomes as to how you decide to finance a franchise once you have made that acquisition decision. We’d like to share a couple key points. First of all, whether it’s a franchise or any business whatsoever, it’s financed by two guys, debt, and equity; i.e. what you borrow and what you put in yourself. Spend some time determining the optimal mix and you will best be able to gravitate to the right financing strategy.

In Canada these days we see franchisees putting in anywhere from 10 -50% as their personal investment into the business. Whats the perfect number? The reality is there isn’t one, because each business requires a different amount of financing and has a different mix of assets and financing needs. The key assets and financing needs in franchising are all your initial soft costs, such as the franchise fee, and then comes your costs to open the door, often called the ‘ turnkey ‘. That turnkey component consists of equipment, leaseholds and opening working capital.

We spoke of 4 methods of franchise financing in Canada .Those are as follows : Specialized commercial finance firms that have dedicated franchise finance divisions , Equipment financing, Working Capital term loans as a supplement to your overall financing, and finally the BIL/CSBF loan . The latter is the government SBL loan that is used by hundreds, probably thousands of franchisees to acquire their franchise. It only has one or two limitations, one of which is that it caps out at 350k, but that certainly covers a lot of franchises in Canada in different industry segments – examples restaurants, service businesses, etc.

So, today’s bottom line? Simply that spending some quality time early on in the process in understand which of the 4 options makes sense for you is a valuable investment. That time, coupled with your business plan and financial projections will help you ensure that you have the right mix of financing solution, as well as a properly chosen business loan strategy for your franchise.

Speak to a trusted, credible and experienced Canadian business financing advisor on how to best decide which financing mechanism works for you.