It’s sometimes just the thought of wondering how financing for franchises works, and if in fact you will be approved for a business franchise loan that gives you discomfort. Let’s examine whats happening in franchise finance today out there in the trenches, aka the real world!
It’s pretty clear to yourself that when you’re contemplating the purchase of a franchise you will need financial assistance via a franchise loan to complete your project. Those funds in effect compliment or complete your equity, i.e. your own investment into your new business. We point out to clients that the same challenges and issues pertain to whether you’re purchasing a brand new ‘ turnkey ‘ operation or if you are purchasing from an existing franchisee who is selling.
P.S. Don’t forget to ask why the franchisee is selling?!
So where is commercial lending at Vis a Vis Canadian franchise financing? Do you have to do a lot of homework to investigate how to successfully complete a franchise finance loan?
Naturally in a perfect world ( its not always perfect as you may have observed ) you’re looking for financing that completes your transaction, has reasonable rates, and provides you with a term on the loan that is suitable for both cash flow and repayment .
In Canada franchises are financed successfully in a number of manners – but it’s certainly not a large choice, so it’s important to focus early on, on what you can achieve and with whom. There are one or two specialty franchise finance firms but these firms typically focus on the relationships they have with some of the largest an well know franchisors, many of whom have franchises for sale in the 1 Million dollar ++ range . That isn’t for everyone of course.
It’s actually the Canadian government (that’s a surprise!? that has a huge role in financing for franchises in Canada, but in a somewhat indirect method. They sponsor a loan program called the BIL/CSBF loan that provides financing for a huge amount of franchisees in Canada. The program is clearly a champion of small business, on which franchising is of course based – independent owners and operators working with success franchisors in Canada.
The government in effect guarantees a very large percentage of the loan, allowing you to receive those rates, terms and structures that are absolutely some of the best financing terms in Canada, bar none.
What do you need to do then to get your franchise financing house in order then? It’s not a cake walk, but quite frankly is not as hard as you think to accomplish your goal of a success business franchise loan.
You want to be able to ensure that you’re prepared – naturally you would do that for any business financing you would ever contemplate. You need to be able demonstrate a reasonable personal credit history ,as well as some level of either general business knowledge or industry specific knowledge relative to the industry within which your franchise is located, i.e. restaurants, service business, etc.
It’s important to have a clear cut business plan that demonstrates how your financial package looks, i.e. how the combination of your own equity and the loan will allow you to acquire the franchise, and, of great interest to the lender, repay the loan.
Will your franchisor help you in all this? Yes… and no. It’s our observation that franchisors are focused on selling franchises, not financing them! So be prepared to carry the weight of most of the work in completing you’re financing for franchises.
Want some help? There’s lots out there. Consider talking to a trusted, credible and experienced Canadian business financing advisor who can assist you to achieve your goal as a successful franchisee in the booming Canadian franchise market.