The Best Of Times.. Or Worst Time To Finance A Franchise ?

OVERVIEW – Information on franchising finance in Canada . Franchise business financing requires a solid understanding of some key principles and facts

Franchise business financing
in Canada requires solid basic knowledge around those ‘ headwinds ‘ Franchise Business Financing that buffet the franchisee about when he or she is seeking a franchise solution. Without some expert help the franchisee potentially can fail in his efforts to successfully finance a business. Let’s dig in.

The Canadian franchise sector as a whole couldn’t be more ‘ busy ‘ – in fact many maintain its ‘ hot ‘. A fairly solid economy, as well as the desire to become an entrepreneur of sorts makes franchising attractive. Corporate downsizing also tends to offer opportunities to experienced individuals who might otherwise view starting a business as too ‘ risky’.

Part of the problem we have seen in many cases revolves around the fact that some franchisors do not properly investigate or asses franchisee financial and business qualifications in their sometimes haste to ‘ sell ‘ a franchise. Remember always that franchisors ‘ sell’ franchises, they don’t ‘ finance’ them – that’s simply not their business or best use of capital.

Does the quality or reputation make a difference in the ability to finance your franchise? While there is probably no ‘ bad ‘ list of franchisors available it’s safe to say that many franchises have a reputation of being a bit more ‘ tried and true ‘ when it comes to business success. In Canada the franchisee has the option of dealing with a Canadian franchisor, or a chain that has U.S. or foreign ownership. In some cases you might be dealing with a ‘ MASTER FRANCHISE ‘ – someone or an entity that has purchased the rights to a geographical territory, such as… you guessed it… Canada.

We’ve observed that for whatever reason some franchise sectors tend to attract franchisees more than others – they include restaurants/hospitality , training, hair, fitness etc. It’s incumbent on you the franchisee to demonstrate to your lender that you have both the right combination of passion and experience to start, run and grow a franchise.

So let’s bore down into the actual financing of your franchise. That financing is achieved by either a specialty franchise lender ( they are extremely limited in Canada ) , a bank ( highly improbable ) , a bank via the SBL loan ( highly probable by the way !) , and a combination of assorted financing services such as leasing, merchant advances, working capital term loans, etc.

So, getting back to… the bank! While all our Canadian banks have franchise ‘ units’ they are heavily focused on arrangements with only the most popular , large and successful chains .

Traditional financing for a start up is simply not available without the franchisee putting up as collateral significant personal collateral, aka the home, savings, etc. Typically that’s not desirable for the franchisee! Simply speaking, you might find that the guy in the bank commercial on TV is not the lender you deal with in the branch!Franchise Business Financing
We referred to the Canadian SBL loan above; it’s a solid way to finance your franchise if you meet some basic criteria. That includes a reasonable down payment, a decent business plan, good personal credit history, the loan only finances equipment and leaseholds, but more often than not that’s the bulk of the financing needed. Personal guarantees under the program are also limited, which is attractive.

Typically you want to have a ‘ team ‘ in place to ensure legal and financing issues are in place to help cement success. That might include your lawyer, an accountant, and… when it comes to financing a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
. You’ll be in better shape to navigate those business and financing headwinds.

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 : Franchise Business Financing

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