Franchise Business Loan Financing Options 7 Park Avenue Financial

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Ten Things Mom Didn’t Tell You About Financing Options For A Canadian Franchise Business Loan
Demystifying Franchise Finance in Canada


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If there is one business segment that is not out of favour these days, it's the franchise industry... not the least of which reason is that a huge percentage of the Canadian economy depends on sales from this entire industry.  

Clients have very similar questions when it comes to a franchise business loan, revolving around their need to realize the entrepreneurial dream with financing options that make sense for their particular situation.

We thought we would cover off ten of the most popular questions/issues around franchise business loan financing options, many of which stem from misinformation they have received or simply their desire to get some solid answers to fundamental questions.

So here we go! How long does the financing process take?  Typically we advise clients that they should be assessing their financial options in tandem with their progress on selecting and formulating their final decision around which franchise to purchase. We see many instances where a client has lost a lease or location because they were not able to commit to financing approval. In many franchise segments the proverbial three things reign supreme - location, location, and... you guessed it... location!

Is there a lot of 'red tape' when it comes to exploring financing options for franchising? Our answer to that simply is that a franchise is a business and you should understand that the key issues revolving around the purchase of any business - i.e. due diligence, a business plan, a financial plan, miscellaneous costs, etc. are all in place in franchising.

If we are turned down elsewhere can financing approval be still obtained? Absolutely... positively, it’s a case of seeking the best alternative that fits your total purchase price and owner investment into the business... i.e. your equity contribution.

Can both small and large franchises be financed? One or two specialized commercial finance firms dominate the major franchise market when it comes to large-cap franchise investments. These transactions can be in the millions and often involve real estate. However, thousands of franchises are financed every day in the 50-500k range.

What are franchise loan funds used for? In the mainstream of financing for franchises, the finance covers equipment assets, leasehold improvements, and in some cases working capital. Many soft costs, such as your franchise fee typically can’t be financed.  

How much can we borrow? Boy, do we get that one a lot. The BIL program which covers a majority of franchise financing options does max out at 350k... other complementary financing such as working capital term loans, merchant financing, and equipment leasing can provide top-up financing.

What are my requirements to get approved for a franchise loan? Two key requirements are a reasonable personal equity investment into your new business, as well as a reasonable credit history and business track record in your new or related industry.

Can franchise financing be arranged on an existing franchise? Absolutely, positively... that’s a yes! A different strategy is involved, as we are now looking at an existing business with financials, assets, cash flow records, etc. But resales can be financed!

Can real estate be financed with a franchise acquisition?  Our answer to this one is simply that normal real estate financing guidelines apply, so whether you are purchasing a manufacturing company of a restaurant franchise the real estate component would typically be financed separately through a holding company you might set up.

Does franchise financing cover the construction costs of my new business? Yes, that is exactly what many programs are used for.

That covers a lot of the basics. Carefully planning via a business plan and financial projections are key.  In any business expert advice gets you to the goal line faster. Seek and speak to a trusted, credible and experienced Canadian business financing advisor who can help you get to 'the dotted line!’




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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