YOU ARE LOOKING FOR FRANCHISE FINANCING!
Small Business Loan For Franchise Financing
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Financing & Cash flow are the biggest issues facing business today
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When looking for a loan for a franchise financing 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! Welcome to franchise loans 101!
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, as every business owner or franchisee knows!
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.
BUYING A NEW FRANCHISE VERSUS AN EXISTING FRANCHISE
In some cases potential franchisees opt to in fact purchase an already existing franchise. Similar to a home purchase it’s 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.
FINANCING LEASEHOLD IMPROVEMENTS IS A KEY PART OF ANY FRANCHISE LOAN
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 improvements.
THE CANADA SMALL BUSINESS LOAN - IT'S GUARANTEED BY THE GOVERNMENT!
Different types of financing in Canada for the franchisee require different types of personal investment. In the case of our aforementioned franchise, the Government Small Business Loan requires a minimum of 10% of permanent equity is required. We can refer to that as the owner's equity or owner contribution to the business. Small business start up loans for franchisees are perfectly suited to the Government loan program
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 a part of his, or her, overall equity contribution.
When you think of the overall financing package you need for a small business franchise funding 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.
Whether its a government loan or a commercial loan the business owner should be able to demonstrate a good credit score as a part of an overall package submission. That score will hopefully be able to garner a good interest rate as a part of your loan approval.
PROPER PLANNING INCLUDES A BUSINESS PLAN !
The importance of planning for working capital needs is critical in the ultimate success of your business. Proper cash flow and business plan planning are critical. Often the franchisor can help you with an overview of working capital needs based on their experience within their chain. At 7 Park Avenue Financial we prepare plans for our clients that are cost-effective and meet and exceed lender requirements.
Remember also that timing is everything in business - so don’t leave your financial planning to the last minute. It should be an integral part of your overall purchase plan.
CONCLUSION - Some final words ..
Only a very small amount of franchisors will assist in financing their franchises - that is not their core business - they want to sell franchises, not finance them! In certain cases, they might have an established program with a bank or business lender. Canada's chartered banks in some cases have arrangments with large well-known franchisors that have a large market share and possess well-known branding.
So, as the commercial says, ‘Don’t 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.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020
