Buy a franchise. We guess that’s challenge # 1. And # 2? It’s of course franchise financing companies and solutions that will allow you to realize on the franchisee dream in Canada. That’s our job we guess. Let’s dig in.
It goes without saying (but we will anyway) that the goal of every new entrepreneur in the franchise industry is to be successful. Putting a proper financing package together with solutions that match your needs, budget and cash flow is what that’s all about.
It’s really a combination of financing you need to purchase and acquire the franchise and then funds required to run it. Although most franchises are run on a cash flow positive basis – ie cash sales, etc there still is a working component to your transaction. No matter how carefully you’ve prepared your budget and cash flows Murphy’s Law always seems to kick in on occasion.
In Canada the financing that you secure comes from yourself, thats the equity component, and one or a combination of debt scenarios – your loan / loans. Financing from debt and equity typically covers franchise fees, equipment, leasehold improvements, and potentially a working capital component. Spending some carefull time on the breakdown of those components will save you a lot of grief in the long run. Oh and by the way your banker or commercial lender needs to see those also!
The goal of every business borrower in Canada is to minimize risk – to that extent you should try and avoid securing personal assets at all cost. One way to do that is via an ‘ SBL ‘?
An SBL..? It’s the trade name for the Government of Canada Small Business Loan, and hundreds, if not thousands (were not really on a first name basis with the govt) of franchisees utilize this program. It was certainly NOT created to specifically address the needs of franchisees in Canada, but boy has it turned out that way.
So why an SBL franchise loan? Some pretty basic reasons really – low competitive rates, limited personal guarantees, no personal collateral, and flexibility as to repayment without penalty etc. That’s a powerful combo of benefits in case you havent figured it out already.
Franchisees can of course pay cash for their business purchase, and even contribute their own capital to financing the operations and growth of the franchise. However, we’ve always guided our clients not to collapse RRSP’s, take out collateral
Home mortgages, borrow from friends and family. While those solutions work they quite frankly mix up your personal and business finances in an un-healthy way.
If you arent securing a Govt small business loan for your franchising you need the assistance of a specialized franchise finance firm. Alternatively other Canadian lenders can assist you with solutions based around equipment finance scenarios.
One suggestion? Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your goal to buy a franchise and the solutions available to complete a successful acquisition of a new or existing business in Canada’s fastest growing business segment.