The right approach. That’s definitely what it takes to finance a franchise business purchase in somewhat challenging economic times.
The majority of aspiring franchisees in Canada look to banks and specialized finance firms when investigating the purchase of a new or existing franchise business. Let’s investigate successful criteria and methods for completing the purchase of such a business.
Do Canadian banks finance a franchise? That naturally is the instinctive first ‘ go to ‘ when it comes to the entrepreneur’s choice of completing a business purchase in the franchise industry. Broadly speaking they don’t specifically finance franchises outside of specialize government or franchisor programs.
If you have a stellar personal net worth and credit rating we suppose that many banks would consider some sort of term loan based on collateralizing your personal assets… that naturally is not our recommendd strategy, as we hav always felt its important to separate your business and persoanl life when it comes to finances.
Jut how important is your personal credit history as well as your overall financial profile… what the finance folks call you personal net worth – simply speaking ‘ what you have ‘ and ‘ what you owe’! We assure clients that a strong emphasis is placed on your personal credit and business background – typically you would want a ‘ beacon score ‘ at the credit bureau to be in excess of 650.
If you do choose to secure a franchise with personal assets you’ll be asked to provide collateral such as a home mortgage, etc. Again, as we said that’s not our recommended strategy.
So if the banks don’t finance franchises in Canada who does. Are you ready? Banks! What do we mean by that seeming contradiction? Simply that the majority of franchises in Canada are financed by the banks, but via vehicle known as the BIL/CSBF loan. It’s a program run by the federal government which many banks have adopted as a solid vehicle to finance franchises in Canada.
The basics of the program lend themselves pretty perfectly to financing a franchise business purchase, and the structure of these loans fits what you are trying to achieve. Why? Simply because terms of the loan are from 5-7 years, rates are commensurate with many other types of business financing, with the ‘ kicker’ being that you only are required to guarantee 25% of the loan.
Will a franchisor step in to help you finance your business? That’s a question we get a lot, and the answer generally is ‘ NO ‘. In a number of cases though franchisors have worked out packages that can more easily facilitate the bank completing a financing. This tends to work with larger brands and larger business acquisitions in franchising. The bottom lone, don’t expect internal financing from your franchisor.
Other key aspects of successfully finance a franchise in a downturn are common sense business elements – a solid business plan, locating a banker of financial advisor that is experienced in franchise loans, and aligning yourself with a successful franchisor based on your own personal and business background .
Speak to a trusted credible and experienced Canadian business financing advisor on how you to can finance a business purchase in challenging times.