OVERVIEW – Information on franchising business loans in Canada . Franchise financing challenges require expert navigation of different loan and finance strategies to successfully complete entrepreneurial ownership for the potential franchisee
Franchise financing success in Canada is visualized by the potential franchisee – it’s the end of the road in their journey as a new franchisee. But the reality is that attaining that goal is dependent on information and experience often not fully recognized by the borrower. Let’s dig in.
Franchise opportunities in Canada are diverse, many of them offered by franchisors that are both Canadian and also U.S. origin. It’s not secret that finance loans for a franchise are somewhat more plentiful in the U.S. with diverse lenders participating in this high growth economic sector.
In Canada, as we have stated, franchisee loans come in different ‘ shapes and sizes’. Let’s explore the who and the how.
The borrower must also be prepared to spend some time to distinguish between the types of finance package he or she is looking for. That might be :
A turnkey acquisition opportunity
A re-purchase of an existing franchise ( ‘ Refranchising ‘ )
Financing for a multi – unit transaction
Master franchise scenarios
Asset and Leasehold improvement
The amount invested in the business by the franchisee is one of the key determinants of loan ‘ shape and size’. In Canada this can range anywhere from 10- 50% depending on franchise lender requirements. Franchise loans are typically secured by the assets, tangible or otherwise, of the business. It’s fairly rare for franchisee personal assets to be attached to a franchise loan.
That above scenario therefore mandates that franchising business loans need to demonstrate they can be repaid out of cash flow. Here’s where a solid business plan, cash flow and opening balance sheet will go a long way to reflect loan approval success. The borrower, or his advisors are well recommended to ensure some type of contingency financial modeling also occurs – if only for the reason that Murphy’s law is everywhere in all aspects of business!
Clients often ask what are the ‘ rates and fees’ in Canadian franchise financing. Almost always these transactions are in the single digits, which also reflects the relatively low current interest rate environment.
In Canada the franchise opportunity is financed by either a specialty lender or a combo of financing derived from a bank or a commercial finance firm. This includes lease companies, merchant advance firms, working capital term loan lenders, and the Canadian SBL program. The latter is extremely popular and is suited to a number of franchise opportunities.
If you’re a franchisee that can visualize the end to your acquisition journey, but don’t necessarily know who to get there seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you in sorting out those different ‘ shapes and sizes’ inside the financing puzzle .
Author: Stan Prokop – founder of 7 Park Avenue Financial
Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset based financing. In business 10 years – has completed in excess of $90 Million of financing for Canadian corporations. Core competencies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info re: Canadian business financing & contact details:
7 Park Avenue Financial
Off. 905 829 2653
Cell 905 302 4171
7 Park Avenue Financial
Canadian Business Financing