Understanding The Art ( Or Science?) Of Franchise Financing

OVERVIEW – Information on financing franchise opportunities In Canada. A Franchising Loan Done Right

Financing franchise opportunities in Canada may well be considered an art… or is it a Science. How does the franchisee entrepreneur get on the right track when it comes to a franchising loan? Let’s dig in.

When it comes to financing your new franchise (either a new turnkey opportunity or purchasing an existing franchise) it’s all about ensuring you are seeking, and have the wherewithal to complete… the right type of financing you require.

A key factor in that whole process is either the down payment or equity component that will be demanded by either your franchisor, your lender, or in some cases, both! When we talk to clients about franchising loans the down payment/equity they put up is also a sign of their individual comfort level or risk tolerance. Let’s explain that one.

While we have noted that your down payment may well be a strict requirement the other two issues surrounding that are the entrepreneurs comfort level with the amount of debt they are taking on. They might view a larger down payment, if possible, as the method to reduce financial risk. It’s important to note that the amount of risk around equity and debt that the franchisee is comfortable with is the same situation the largest corporations in the world struggle with also – namely capital structure and leverage.

By the way , that down payment or equity component can range anywhere from 10 to 50% based on the amount of financing you need, where you get it, and the type of loan or loans required to kick start and grow your new business.

We caution clients also that they must consider longer term financing issues, not necessarily just focusing on getting the business open. Down the road new assets may be required, and depending on the type of business you are considering it’s important to look at how you will finance inventory, receivables, equipment, and leaseholds required to keep your franchise ‘ up to snuff’.

Your ability to demonstrate how you will pay back financing that’s required will essentially always come out of your business plan and cash flow forecasts. They need to be tailored to your overall business model – the lender or lenders in franchise financing arent your new equity partners – they share no upside, just the downside of seeing their loans not repaid. Demonstrating proper cash flow is key!

When it comes to repaying franchise loans its all about sales, so focus properly on realistic sales and breakeven statistics.

So where does your franchising loan come from in Canada. If it is not from a select franchise specialty lender then another popular finance vehicle is the Canadian BIL loan, that’s perfectly suited to finance many franchises. It is attractive in terms of low personal guarantee, equity required, repayment, and by the way it also finances leasehold improvements and construction if that’s a key part of opening your business.

Take some time to understand what finance offerings are available that suit your particular needs, whether it be in the popular hospitality (restaurant/hotel) area or a service type of business.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your franchising loan needs. Get that right combo of ‘ art ‘ and ‘ science’ working for your franchise opportunity.

Stan Prokop – founder of 7 Park Avenue Financial

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:


Greg LaBella
7 Park Avenue Financial
Off.   905 829 2653

Cell   905 302 4171