When looking for a loan for a franchise is it important to match the right financing to your purchase?
You bet it is! That’s why some solid knowledge and tips in business loans for franchisees is definitely in order!..
Where exactly then does financing come in when it relates to the purchase of a franchise .It’s critical. Because even though franchising provides you with an already proven business model its safe to say there is no real guarantee on cash flows and revenues.
And if your franchise purchase focuses on the importance of a good location there is of course no guaranteed knowledge that location will work out.
When the proper financing for a loan for a franchise is not undertaken you may find yourself in a position of not having planned for any initial operating losses to cover both operations and of course the financing cost – your monthly payment.
In some cases potential franchisees opt to in fact purchase an already existing franchise. Similar to a home purchase its known as a ‘ resale ‘. Here again financing is handled a bit differently, as a start up is not necessarily viewed, and financed, in the same manner as a new turnkey build operation .
Also, typically a start up turn key franchise involves leasehold improvements. These are traditionally harder to finance for any industry, even outside franchising. It’s here that thousands of franchisees turn to the government business loan to facilitate the finance, via business loans, of leasehold improvement s.
Different types of financing in Canada for the franchisee require different types of personal investment. In the case of our aforementioned franchise Government Small Business Loan a minimum of 10% of permanent equity is required. We can refer to that as the owner equity or owner contribution to the business.
But a down payment in any type of franchise financing does not necessarily cover off the rest of the business loans issue, which of course relates to ongoing working capital for operations, growth, etc.
Canadian franchisees will also often difficult to finance their franchise fee, and typically we see that part of the transaction being financed by the owner as part of his, or her, overall equity contribution .
When you think of the overall financing package you need for a franchise business remember that it can be a complement of different types of financing. It could be a specialized finance loan that covers the entire purchase ; alternatively it could be a Govt BIL loan that is finalized perhaps with the assistance of some specialized lease finance structure for certain financeable assets.
The importance of planning for working capital needs is critical in the ultimate success of your business. Proper cash flow and business plan planning is critical. Often the franchisor can help you with an overview of working capital needs based on their experience within their chain.
Remember also that timing is everything in business – so dont leave your finance planning to the last minute. It should be an integral part of your overall purchase plan.
So, as the commercial says, Dont leave home without it referring in our case to a financial plan or roadmap that matches financing to need . If you do in fact realize the importance of matching the right financing to your purchase with respect to a loan for a franchise speak to a trusted, credible and experienced Canadian business financing advisor for assistance.