6 Ways To Finance a Franchise In Canada – Spoiler Alert – 3 Are Not Recommended

OVERVIEW – Information on financing franchises in Canada. Franchising loans can be separated into different categories – which one is right for your purchase or acquisition.Financing Franchises In Canada

Financing franchises
in Canada has the potential do be done right, or incorrectly when it comes to the types of franchising loans that the potential franchisee might consider when purchasing a new or existing franchise. Note – Not all franchisees recognize an existing franchise can also be purchased. Let’s dig in.

In a perfect world ( it’s not )you want to have the ability to assess every financing option you have and pick the one that is best suited to your needs Some of those choices might be we can call’ traditional ‘ – some might be creative or alternative in nature.

While industry associations tout financing as a key initiative for the industry the franchisee often finds it very frustrating to source ( in a timely manner ) the capital they need to acquire the business.

It’s all about you, as the franchisee and the lender(s). Let’s examine the key elements that allow you to assess the amount of risk you personally are willing to take, as well as the risk any lender perceives in yourself and your transaction.

Let’s examine 6 options:

1. In certain cases the franchisee has the ability, via personal resources to pay cash for the entire business purchase. Whether that’s driven by pride of ownership or fear of borrowing there are pros and cons to this option. As a cash buyer you are in a position to have not debt and financing costs associated with a franchise loan.

That heightens your probability of success, but at the same time puts all your investment 100% at risk if the business falters of fails. We have encountered numerous clients who have tapped out all personal resources and become at risk of failing when an initial stumbling block such as falling sales occurs. Remember also that even the largest corporations in Canada recognize it’s good to have some debt to experience maximum return on investment based on the mix of equity and debt.

2. Traditional loans – typically these are bank loans and banks very, very rarely finance franchises on an as is basis. If they do they will require owner equity and collateral many times more than the investment you require. Additionally many industries are out of favor in some respect when it comes to traditional bank loans.

3. Many franchisees collapse personal savings such as registered accounts, or in some cases collateralize their homes in order to complete a franchise financing .Here again both the overall risk as well as tax implications often don’t make sense when it comes to financing franchises in Canada in this manner.

4. Supplemental financing solutions – These are great and can complement the financing of your business. They include working capital term loans, merchant advances, equipment financing, and credit lines secured by inventory or receivables. While often not able to facilitate the entire financing they often can help complete a transaction nicely.

5. Franchisor financing – the bottom line, almost no franchisors finance their franchises in any sort of manner. They sell franchises and either don’t have or want to commit the capital to complete a sale to the franchisee. The real solution is to finance the business via a specialized franchise finance firm who is associated with the franchisor directly. There are really only two n Canada at the time, and their scope is somewhat limited to larger well known chains.

6. SBL Loans – The Canadian CSBF program is a government sponsored bank loan that finances thousands of franchises. While not originally designed to finance franchises it has become a ‘ go to ‘ for many franchisees. The program has great rates, terms and structures, in some cases even better than traditional financing! The one caveat is that the program only finances equipment, leaseholds and real estate.

Which solution is right for you? As we have seen, some are great; some are not so great and in fact bring additional risk to the table. Also ensure you have a proper business plan and cash flow forecast, as well as a personal inventory of your financial net worth and the capital you can contribute to the business.

One solution? Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with franchising loans that make sense for your situation.

Author: Stan Prokop
7 Park Avenue Financial :


Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 – Completed in excess of 90 Million $ of financing for Canadian corporations . Info /Contact :



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