Get Ready For Info On How To Get Funding For A Canadian Franchise Loan

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

WHAT YOU NEED TO KNOW ABOUT FINANCING A FRANCHISE IN CANADA

Successfully getting a franchise loan in Canada still remains a financing challenge for Canadian entrepreneurs who wish to pursue the Canadian dream of owning their own businesses with business loans that make sense!

BUYING A FRANCHISE IN CANADA

Purchasing a franchise in Canada is the business of obtaining a right to use the business ideas of the franchisor, including the name of their business as well as, of course, their business model. The franchisee's ability to access the support of the franchisor around products and services and registered trade-mark names allows the buyer of a franchise to access a turnkey system around marketing, vendors, etc, -Franchisors typically charge a franchise fee to acquire the franchise, as well as charging a royalty on all sales made by the franchise.

The strict control of the business model is kept by the franchisor around how products and services are marketed, sold and priced. All types of industries including food, services, retail, health, cleaning etc participate in this industry.

UNDERSTANDING THE BENEFITS OF THE CANADA SMALL BUSINESS FINANCING PROGRAM WHEN FINANCING YOUR FRANCHISE

While the Federal government's key loan program, technically called the Canada Small Business Financing Program is the main financier, in our opinion, of franchise loans in Canada the program has come under the microscope by a number of people and different associations and bodies.

People who are actually experts in Canadian finance seem to feel strongly that the program has been misused by the franchise industry. We certainly don’t think so and feel it’s simply a case of presenting a clean transaction that has both business and financing merit. That is the key to successful franchise financing. In fact, in 2022 the government of Canada made several very positive changes to the program, all of which would significantly benefit the franchisee.

As noted substantial changes made to the government-guaranteed loan program can benefit the prospective franchisee significantly - In the past, the program focused solely on

NEW/IMPROVED ! - The program now allows franchise fees to be included in the program - this will assist often in lowering the down payment required under the program - As well as offering working capital and line of credit facilities within the loan - Additionally goodwill can also be a component of the financing - which has typically been a challenge.

GOVERNMENT STATISTICS ON FRANCHISE FINANCING IN CANADA

Just to give the reader a sense of the popularity of this program the government figures actually show that overall defaults under the total program involving franchise financings were 26% higher than non-franchise transactions and that the average franchise loan was 43% higher than those businesses seeking financing in a non franchised environment. That clearly evidences at least the popularity of the program.

In the uncertain business global and economic environment, of which certainly Canada Is no exception it is easy to understand how many people from all walks of life and business want to own, and therefore need to finance a franchise.

With respect to the BIL / CSBFL program itself (that’s the technical name of the government program), it seems quite obvious that without a government program in place a lot of franchise financing would not get done.

When clients seek our advice on how to finance a franchise we point out the basics, which are simply that financing a franchise in Canada has become a challenge and invariably needs to be a combination of a couple of different types of financing to achieve full financing success. We also caution business owners to focus on two things, putting the proper financing in place to buy the business on a repayment schedule that makes sense, and, oh yes, ensuring you have the proper working capital and cash flow in place to operate the business successfully in the long term, generating profits and cash flow.

There are many downsides to financing a franchise improperly, that’s why we caution clients to choose an experienced, trusted, and credible financing expert in this very niche field.

AVOIDING THE RISK IN FRANCHISE ACQUISITIONS AROUND FINANCING YOUR FRANCHISE

So let’s focus on some of the things that can go wrong in financing a franchise, and how in some cases you can avoid or manage those pitfalls. In many cases we see clients choosing a franchise too quickly, this might mean they are putting themselves in an industry they don’t know much or anything about, or in some cases, the size of the opportunity and financing are just too large for them to handle.

When any business owner decides to finance a business, either at the start or ongoing, he talks to his advisors about the proper mix of debt and equity – simply speaking how much you borrow and how much you put in. We see many cases of clients who should have entertained a borrowing or loan strategy and instead have sunk in their life savings, only to see those savings either dwindle or disappear.

KEY TAKEAWAY - FINANCING YOUR FRANCHISE

So what's the bottom line, it’s simply that you should assess the proper mix of debt and equity – it’s ok to borrow if it’s for the right reasons. And we can give you one good reason to borrow under the government program, and that is that you are only obligated to guarantee only a portion of the loan if your business fails. That relatively nominal guarantee happens nowhere else in Canadian business financing!

AVOIDING THE RISK OF FRANCHISING

How can the franchisee avoid some of the risks and manage some of the advantages of buying a franchise in Canada? For a starter, they can ensure they understand all the related costs around the franchise purchase, as well as what costs can be financed. Careful due diligence around the restrictions of the franchisor's business model should be understood.

Franchise buyers should know that the franchisor will monitor the business performance in a number of ways, including reporting requirements. It s often highly recommended to talk to other franchisees in the system who can share their experiences. Royalties are a key part of any profit projections and they must be factored into cash flow and profit projections -

Depending on the type of franchise purchased franchisors may impose unique restrictions on doing business.

CONCLUSION - HOW TO FUND A FRANCHISE

So in summary, should you buy a new or existing franchise? Quite frankly that’s your decision and we will assume you are an informed buyer who has planned. But when it comes to financing that business, let’s recap the key basics again –

Many say a franchise gives you a better or more proven chance of success. If you believe that finance your franchise properly and your ability to generate sales and profits and personal wealth should increase greatly. Speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian Business Loan Advisor who can assist you with your franchise funding needs.

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE

How Do You Finance A Franchise

Franchises can be financed with commercial bank loans from financial institutions such as banks and credit unions. Government programs under the federal government Canada Small Business Finance Program are a popular method of franchise finance in Canada for the franchise owner, as well as financing for the business owner available from the business development bank as other conventional lenders -

Numerous alternative lenders and working capital finance companies can also be a part of franchise funding. In all cases, personal cash and personal assets are required to be used to be a part of the equity component of franchise financing solutions. It is very rare that direct franchisor financing is available to franchisees. Some prospective franchisees will consider friends and family contributions to assist with the purchase in addition to personal savings. Lines of credit can also be accessed where borrowers pay interest on only funds that are drawn down.

Many franchisees access home equity loans around their own money to assist in the down payment of their own equity position in the business, Leasing companies often finance equipment costs at competitive interest rates for start up costs. Business loans will typically require a good personal credit history and a good credit report of the franchisee

What are the advantages of franchising?

Adopting a franchise model for new franchise owners allows entrepreneurs as franchise owners to minimize the risk of business failure which is often associated with startup financing in business. Proven business models of the franchisor will often come with an established market share. Well know brands and names can help generate sales revenues and the ability to draw on the support and experience of the franchisor is a key benefit - Entrepreneurs lacking significant business experience can benefit from the training of the franchisor as well as potential assistance from other existing franchisees - Banks and other business lenders are very open to financing franchises with positive reputations.

Additionally, most franchise business models come with established vendors and suppliers associated with the franchise agreement.

SHOULD I BUY A FRANCHISE

Buyers of a business should assess whether they have the entrepreneurial and people skills to run a franchise, as well as any skills that might be required under their chosen business model. Numerous pressures come with running and owning a business - as well as a personal investment will be required as your equity down payment in the business. Buyers of a business must focus on whether they have the personal financial resources as well as the proper financing in place to both acquire, and run the business, as well as understanding business concepts such as financial statements ! Selecting a franchise model that suits their particular interests is also key.

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

How To Get Funding For Canadian Franchise Loan | 7 Park Avenue Financial

FINANCING A FRANCHISE IN CANADA