YOU ARE LOOKING FOR HELP ON HOW TO BUY AND FINANCE A FRANCHISE IN CANADA!
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Financing & Cash flow are the biggest issues facing business today
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It's not an uncommon question from clients: 'Where can I get help on how to buy a franchise?'... And equally as important, 'What type of financing lending and funding is available under a franchise loan scenario?'
By that time the entrepreneur has already gone through those pros and cons of buying a business under the franchise model. The benefits can be significant, and of course, no business model is risk-free so there are cons and consequences do making the wrong decisions.
In general, it’s safe to say you need less capital when you 'buy' a franchise. Other businesses not under the franchise model might come with significantly higher costs, especially if they are established, profitable, and have assets and cash flow. These businesses are often sold on what the finance folks call 'multiples'. Those are basically increased weighting applies to things like cash flow and profit or goodwill.
As a quick example, if a business is earning for example 100k per year and the owner is selling it, a typical valuation for that industry might be a 5x multiple of income. So your purchase price now becomes a half-million dollars. That’s when a franchise purchase and the ability to get funding for it becomes a lot more attractive.
Naturally, if your franchisor is doing well you're looking at buying, hopefully at a reasonable price, a proven business model, and a well-known brand that is growing in popularity.
Ironically, and we certainly don’t think it has to be the case, but financing and funding for a franchise loan often become a huge challenge for clients we talk to. Why? For some simple reasons, a lot of them simply human nature. Buyers of a franchise don’t understand the qualifications, and they come with preconceived notions that the banks and other commercial finance companies won't want to and don’t finance this type of business.
The reality is that franchise lending is in fact alive and well in Canada, with most lenders recognizing the huge part that franchising plays in the Canadian economy.
So how do you identify a 'favourable' financial lending solution for financing your new business? Certainly, we tell clients that they shouldn’t expect a lot of help from their franchisor, whose job it is to sell franchises, not finance them with their own capital.
The majority of franchises under 350K in Canada are financed by the BIL/CSBF program, which is a government loan that is guaranteed in large part to the lenders who participate; in most cases, this is Canadian chartered banks. The terms are very favourable - we repeat very favourable. They include long amortizations, great rates (we think) and minimal personal guarantees.
The challenge for the prospective franchisee is simply locating a bank or franchise financing expert who has the knowledge to package a transaction that meets the criteria of the program. Many clients tell us they were declined initially simply because their package was poorly or incorrectly prepared, and we can assure you, it is not rocket science.
Not all banks and BIL/CSBF lenders are the same. So seek and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with how to buy a franchise, and finance it with a loan that makes perfect funding sense.
