We’ve observed over the years that business owners and entrepreneurs never mind getting the ‘ cold hard facts’ in business, as long as they are in fact getting ‘ the facts’! So let’s share some franchise financing information on how the funding of a franchise loan really works in Canada.
Purchasing a franchise in the Canadian marketplace can revolve around three different scenarios: a total new turnkey start, purchasing a business from an existing franchisee, or perhaps even adding another location or unit to the franchise you already own.
It may be a surprise to many people, but in Canada it’s actually quite difficult for existing franchisees to achieve financing for additional units. Conservative lending policies that focus on the debt you take on will often limit your ability to expand your multi unit dream.
When clients talk to us about the franchise financing information they need to complete loan funding we point out that a very aggressive strategy for achieving a high chance of franchise loan approval is in fact the government SBL program. While we believe it certainly was never intended to focus strictly on franchises, (and it doesn’t) it has become the perfect vehicle to successfully complete a loan funding in the Canadian franchise finance arena.
The challenge though then simply becomes understanding what you need to do to successfully complete the loan process. And doing it right can make this program the ‘ one stop ‘ solution for final franchising approval.
While be believe many clients, and perhaps rightfully so believe the Canadian chartered banks will not support them on their franchise finance attempts the reality is that bank can become your best ally when it partners under the federal BIL/CSBF program .
If you were to finance a franchise under standard business financing arrangements, outside of the program, how could this in effect be accomplished? First of all, you probably would need a very hefty down payment, otherwise known as your equity injection. Payments would be higher if you were unable to obtain the right loan term (amortization), and, suffice to say, it certainly might take quite awhile to get your transaction approved.
And that’s if, and its a BIG if, you get a bank or financial institution onside given the pool of prospective lenders in Canada is actually limited to only 1 or 2 commercial finance firms . Suffice to say also that you’ll probably be spending a lot of time educating a lender about what you need and what you are trying to achieve.
So is there a better way? We categorically think there is! As we said, the BIL program in Canada perfectly suits a franchise financing requirement.
Why? Simply for the following reasons. First of all your total permanent equity injection is only 10%, allowing you quite a bit of room for working capital needs as you start your business . Terms under the program are typically 5-7 years. That means a typical 350k loan will cost you around 6700$ a month which is of course incorporated into your cash flows and income projections.
No outside collateral is required, which certainly isn’t the case in many other forms of business financing, and even your personal guarantee is very limited. Talk about a double whammy of goodness!
So ‘ how long would this all take ‘is a typical question clients have. If you utilize the expertise and resources of someone such a trusted, experienced and credible Canadian business financing advisor the whole process can in fact be completed in a matter of days – if you are prepared!
So, that’s the cold hard truth on some franchise financing information in Canada. Can you handle the truth?! We’re quite sure you can, because it’s all you wanted in the first place!