OVERVIEW – Information on franchising loans in Canada. When it comes down to how to finance a franchise the right information and expertise guarantees entrepreneurship success.
When it comes to how to finance a franchise in Canada the ability of the franchisee to complete that process successfully allows him or her to enter an industry that for all intents and purposes is… booming! We suppose we can even call it the ‘ Golden Age ‘ as a huge portion of today’s economy is in fact derived from the franchise industry itself. Let’s dig in.
Only two types of financing best address funding a franchise. It boils down to either a specialty firm that funds this type of venture or a Canadian chartered bank that participates in , again, ‘ specialized’ financing such as Canada’s CSBF program – which is often perfectly suited to complete the financing required in assets such as equipment and leasehold improvements.
We should mention also that it is very possible to finance a franchise purchase for an existing franchise – with the two caveats being that of course the franchisee will want to determine the true motives for the existing franchisee wanting to sell the business ; as well as obtaining the required permission and approval from the franchisor.
Again in both of the above cases specialty franchise finance and bank financing are potentially available to complete the transaction.
As with any time of business financing in Canada a solid loan package must be evident for franchising loans to be approved based on your requirements. The typical loan package should not seem like a daunting process – it’s essentially info about yourself, your business, and your prospects.
Included in that ‘ loan package’ will typically be the following:
Personal financial data – i.e. net worth, credit history, etc
List of items to be financed – (this should be broken down into several categories, including items to be financed by the owner, assets, leaseholds, franchise fees, etc
Note also that careful attention in the business plan and cash flow should be paid to repayment of the loan, future financing needs, and the amount of owner capital being put into the business.
We often are asked by clients if the reputation or size of the franchise is a key factor in financing approval. On balance we can say that is not necessarily the case and certainly if your franchisor has an existing portfolio of corporate or franchisee locations that is successful size clearly ‘ doesnt’ count!
One technical point is that ‘ service ‘ franchises are very difficult to finance since they have little need for hard assets, leaseholds and are often cash based businesses. A good example might be a Home Inspection franchise.
Franchising loans should be tailored to individual needs, as that relates to term of the financing, rates, repayment, external collateral, etc. When it comes to external collateral, unless you are financing the venture predominantly on your own both a specialty franchise firm, or a CSBF loan will typically require no external personal collateral – i.e. mortgages on your home, security deposits, etc.
Franchising in Canada is experiencing tremendous success. Prospective Franchisees considering this entrepreneurship option should seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist them in how to finance a franchise properly to ensure maximum chances of growth and profit success.
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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