Your Crash Course In Commercial Funding For Canadian Franchise Financing Loan Options

Franchise financing loan options are never as obvious as they might seem. So how about a crash course in funding your new business? We like the term ‘ crash course ‘ as it denotes ‘ research undertaken in an emergency ‘. Many entrepreneurs who are looking for the financing for their chosen franchise want to know they can count on several different avenues of assistance to complete a purchase.

Two key elements of our crash course today are the concepts of both being prepared, as well as ensuring that you can deliver on a reasonable equity component in your business.

Being prepared for franchise financing success in Canada revolves around ensuring you have a focused crisp ‘ package ‘ – key elements of that package are a succinct business plan, and a cash flow projection that reflects repayment of the loan. We meet with many clients who in some cases don’t fully understand that they need to have all their financing sewn up and properly planned for.

Franchise finance is not a staged event in Canada ; you need to ensure you a have a proper combination of equity and , as well as ensuring the early stages of the business operations reflect the proper amount of working capital to survive and grow .

The personal equity you are required to put into a franchise varies, and it varies for several reasons. The factors that affect your ‘ down payment ‘ component include the amount that might in fact be demanded by your franchisor, or on the other hand the lender. Those two requirements are not necessarily the same number all the time, so the correct combination of debt and equity that satisfies your franchisor, lender, and your own personal situation can be a tricky slope if not addressed properly, up front.

A great question we get all the time is whether it’s easier for a Canadian entrepreneur to achieve franchise funding success by virtue of the franchisee model as opposed to purchasing any non – franchise business.

That’s a tough one to weigh in on, but in general we think the franchise business model has more financing success probability, if only for the reason that you’re purchasing a proven business model, not trying to invent one! We’re told that industry stats show that approximately 5% of franchisees fail, while we suspect that amount is higher in non franchise transactions for entrepreneurs commencing the proverbial ‘ start up ‘.

One of the best options for financing your new business as a franchisee is the CSBF program. While not developed specifically for franchising over time it has evolved into the vehicle of choice for Canadian business financing success.

Why is the above noted program so successful then? The simply answer is that terms are great, they include competitive interest rates, a low personal covenant ( guarantee ) , repayment without penalty , and the ability to finance leasehold improvements which are generally very difficult to finance otherwise .

We’re often asked it the franchisor will assist in your financing. Your crash course answer on that one = ‘ NO’. While the franchisor can assist and guide you in many ways don’t count on them to provide franchise funding for your business. The simple reason – they sell franchises, they don’t finance them.

Are there non- bank lenders who specialize in franchise financing loan options. In Canada they exist, but they are very small in number. Often other forms of Canadian business financing can properly compliment your required financing solution. They include equipment financing, or merchant cash advance programs. It’s important to pick the right partner in this regard.

Canadian banks generally don’t lend outright on franchise financing without significant personal collateral and established banking relationships back stopped by strong personal credit ratings. Where they do participate directly it is with larger chains that are viewed as industry leaders. An example – think hockey/donuts!!

Although a crash course isn’t the worst thing you can do in planning your franchise success a better alternative is to seek solid mentorship and assistance from people or firms that have solid experience in helping you make a success of your franchise.

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in your franchise funding success.