You Are Looking For Info and Help On How To Finance A Franchise In Canada
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It tends to start with the franchise fee itself, but there are a number of other financing challenges that come into play when the Canadian entrepreneur is faced with the basic question - 'how to finance a franchise' in the Canadian marketplace. Financing one of the most important business investments you'll make can be a challenge - so let’s identify some key issues, tips, and strategies on being successful in this challenge.
A solid way to look at finance success in your franchising 'adventure' is to break down your estimated costs into several key areas. Most potential franchisees don’t realize that each key aspect of your franchise purchase is financed in a different manner.
Let's breakdown the key elements of a franchise investment. They include the franchise fee itself, which we have already referred to. Other components usually equipment you may need, leasehold improvements to any new facility, potentially real estate, as well as the often forgotten but as important ongoing working capital.
Our experience is that the franchisee typically in Canada has to cover the franchise fee himself or herself. That then leaves our other components to address. So is financing a franchise in Canada a challenge? In some respects it has the same challenges as if you were opening any new business from scratch - however, the good news is that the financing industry as a whole tends to view franchises positively because franchisors, when successful, have proven brands, track records, etc...in general, they are considered, we think, a lower risk than many other 'start-ups'.
We sometimes forget to mention to clients the possibility that they may be in fact purchasing an existing unit from the franchisor - that typically involves buying a company or corporate location that the franchisor wants to sell, or, in some cases purchasing a franchise from an existing franchisee who is motivated to sell for whatever reason. The bottom line, both new and existing franchises can be financed.
We are quite sure that when most franchisees consider how to finance a franchise investment they think that financing might in fact come from a Canadian chartered bank. Well, here are the facts on that one... it does... and it doesn't. While it is somewhat rare that your bank would directly finance 100% of your franchisee needs under a normal term loan scenario the banks do play a key role in franchising in Canada.
How? They do it under the auspices of the Canadian BIL/CSBF program which offers a competitive term loan for Canadian franchises under the umbrella of this program. The benefits of that program are significant - they include financing up to $350,000.00 as well as a low personal guarantee. Rates are excellent, and terms are flexible. Criteria for the program essentially are a decent personal credit history of the prospective franchisee, as well as a respectable owner investment into the business.
What is respectable?! We knew that question was coming next. Typically to be successful anywhere from 10-40% investment is required by you as the franchisee. While one commercial finance firm in Canada dominates franchise financing individual franchisees can complement financing needs with equipment financing, business lines of credit, business credit cards, and the increasingly popular merchant advance loans for retail oriented businesses.
Both having a finance plan and knowing how to execute on your plan is what will make you successful when you are faced with today’s questions 'how to finance a franchise'... Speak to a trusted, credible and experienced Canadian business financing advisor for help and tips you need to be successful as a franchisee entrepreneur in Canada.
Stan Prokop 7 Park Avenue Financial/Copyright/2020
