YOU ARE BUYING A FRANCHISE IN CANADA!
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Financing & Cash flow are the biggest issues facing business today
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Franchise financing in Canada. Boring... right? Well, it might not be if in fact you're a franchisee looking for a loan when buying your franchise.
We're reminded at the same time of Sisyphus, of Greek mythology. He had to roll that boulder up the hill, requiring immense strength and endurance, only to be destined to see the rock fall down and to have to repeat the action in perpetuity. Anyway... with the right info and contacts you certainly don't have to be a Sisyphus when it comes to franchise finance!
It makes sense that if the franchise that you have chose is in fact part of a successful chain that it will require a probable substantial investment, both in terms of equity as well as the franchisee loan. All businesses are founded with that combo of debt and owner equity.
The positive side of the story is that franchise financing is in fact available and generally viewed as a positive in nature that financing is in fact available. And a well known or reputable franchisor is in fact just the icing on the cake.
Typically the down payment required to open and fund a franchise tends to be anywhere from 10- 50% depending on the structure of the financing you require. While some permanent equity is a must it is to the benefit of yourself and the lender that you demonstrate some working capital and what we can call 'financial cushion' in case things are off to a slow start. We're reminded of a saying by an old boss we had in the 80’s - he said he never met a forecast he didn’t like!
So what in fact is the franchise loan offering in Canada. Well it’s a combination of bank financing, specialized finance via a commercial finance firm, and then what we call a cobbled together approach of equipment, line of credit, etc.
Many franchisees, once established are considering cash advance financing, which in effect monetizes future sales which are then repaid over time as you generate new sales. They are done on a revolving and or term basis and typically have higher financing rates attached to them.
Most franchisees choose the BIL/CSBF program which is perfectly structured for franchise financing fewer than 50k with attractive borrowing and criteria features attached to it.
The essentials of any franchise financing requires a solid, preferably ' crisp ' business plan outlining your background, a financial forecast, and info on the franchisor and your chosen industry, whether it is a service or a product.
Typical debt to equity ratios apply , and you want to ensure that amount you borrow is repayable out of operating cash flow. Optimally you want to cover your loan payments, build equity, and of course draw a reasonable salary that you and your family can live on. The appeal to the franchisee is of course the proven business model offered by your franchisor that presents a reasonable, hopefully proven method of generating profits, cash and equity.
So, boring? Maybe, but not if you're on a search to properly finance a major business/career decision in your life. Speak to a trusted, credible and experienced Canadian business financing advisor on how you can access franchise financing in Canada.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020