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Franchise Business Loans Franchising Loan
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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Franchise business loans in Canada. Can the prospective franchisee avoid doing something really wrong when arranging their franchising loan? We think we can help clarify, so let's dig in.
PICKING YOUR FRANCHISE / FINANCING YOUR FRANCHISE PURCHASE
While a lot of entrepreneurs focus on the particular business or industry segment they are looking to participate in they sometimes sorely miss looking at how the franchise financing industry operates. It's somewhat of a given that it’s up to you to pick the franchise that best suits your talent, expertise, and budget. But when it comes to financing your business are you 100% sure of the expectations of your lender or lenders.
If there is any good news is that you do have some solid options available to yourself when financing your new business.
KEY ELEMENTS OF A FRANCHISE LOAN FINANCING
What exactly are some of the key elements of any franchise finance scenario? Well, they include the franchise fee, equipment, leaseholds, working capital, and ongoing capital and cash flow needs.
THE NECESSITY TO FINANCE LEASEHOLD IMPROVEMENTS
Leaseholds are one of the most misunderstood aspects of the franchise finance mystery or conundrum. Typical leaseholds might include construction, HVAC, plumbing, lighting drywall, etc. If your franchise is not going to be fully financed by a specialty franchise lender then the best solution to financing leaseholds is under the auspices of the Govt small business loan program, In fact, this program was designed solely for two asset categories - equipment... and the leaseholds we have been talking about.
In certain cases, the franchise lender may wish the co-operation of your landlord when it comes to what is understood as collateral in the terms of your agreement with the landlord. The situation can sometimes become more complex if there is not clarity and understanding around certain assets that you as a franchisee may have thought was a leasehold improvement as opposed to assets that become attached to the building such as oven hoods, etc. (That’s in the case of restaurants, etc)
At the end of the day, it’s both the combined quality of the franchise you are buying as well as your own financial strength as determined by opening balance sheet and projected revenues and profits. Business plans and cash flow projections are a necessity in franchise loans - At 7 Park Avenue Financial we prepare a business plan for clients that meet and exceed the requirements of lenders.
If there is one continuous misunderstanding or misconception that we see in discussions with clients on franchise business loans it’s as follows: The franchisor rarely plays a key role in franchise finance. That’s your job or the job of you and your Canadian business financing advisor. At the end of the day, your goal is simple - you want to be in a position to raise the right amount of capital you need to open and develop your business for success. Only the smallest percentage of franchisors in Canada offer any real tangible financing assistance.
4 TYPES OF FRANCHISE LENDERS
Who are in fact the lenders you should be working with when arranging your franchise loan? In broad categories they are:
SPECIALTY FRANCHISE LENDERS
THE GOVERNMENT SMALL BUSINESS LOAN (very well suited to franchise finance) These loans are somewhat similar to U.S. ' sba loans'
EQUIPMENT LESSORS - They finance equipment and in some cases leaseholds
CANADIAN CHARTERED BANKS - Ongoing working capital and cash management -
The reality is for many franchises the type of loan you need may in fact be a cobbling together of a number of different finance solutions. In some franchises, there may even be a real estate component that can be often addressed separately.
Important to note also that you can buy a new franchise or one being sold from a franchisee that is selling, with the approval of the franchisor of course.
DO BANKS REALLY FINANCE FRANCHISES? YOU DECIDE!
Since our theme is ' avoiding doing something wrong ' in franchisee finance it’s important for us to clarify bank loans in this industry segment. While a bank would consider financing your business directly it would place heavy reliance on your equity in the business, your personal credit, and collateral that you might have in savings, your home, etc. In our opinion where the banks do a better job is in the underwriting of the BIL loan when it comes to direct franchisee finance. Franchisees should ensure they can demonstrate a good credit score in personal finances as well as a reasonable net worth , which will also affect the interest rate they can achieve. Interest rates are at an all-time low for every type of business financing and won't vary greatly in most franchise funding alternatives .
CONCLUSION
To avoid making tragic, costly and time wasting mistakes in a franchising loan consider seeking and speaking to a trusted, credible and experienced Canadian business financing advisor who can asset you with franchise business loans that make sense for your future investment and success.
