Welcome to Franchise Loan Boot Camp!
OVERVIEW – Information on franchise financing basics in Canada. How does the entrepreneur achieve successful franchisee finance solutions when entertaining the purchase of a new or existing franchise
Franchise financing basics in Canada. Is there a ‘ boot camp ‘ we might be able to attend to learn more about ‘successful’ franchisee finance solutions in Canada. We’re giving you free admission, so let’s dig in!
Boot camp. It’s really a place where people go to learn some basic skills we’re told, and so it’s a good analogy for the Canadian entrepreneur and would be franchisee searching for financing options for their business.
While our great Canadian banks have some great commercials and websites around franchisee financing support in Canada in fact it’s very rare they would finance a tier 2 or tier 3 franchise directly – so, so much for that commercial! They are very quick; we would point out, to finance the tier one franchises that are huge ‘ brands’ with very limited chance of business failure. (HINT – Think hockey player/donuts or Clown/hamburgers… ‘ Billions served’).
So what then must the franchisee do to locate the appropriate financing for a new turnkey or existing franchise? Franchises can be purchased and financed when they exist already because the franchisor is converting a corporate store to a franchise, or an existing franchisee has permission to sell the business to you. Another Hint – Don’t forget to check out why he or she is selling!
So it’s back to our entrepreneur searching for the franchise loan that makes sense for their business. Some key fundamentals need to be in place to source the small handful of financing solutions available in Canada in this industry. By the way, they are great solutions; they are just limited so you as a franchisee have to know what they are and who offers them.
Prior to entering the door
to franchise lending a few fundamentals must be in place. The entrepreneur/business person must ensure they have a reasonable personal credit rating as well as the resources to muster a down payment or equity contribution in the business. That ranges from anywhere from 10-50% based on the type of franchise you are buying, the amount of financing you need, the perceived risk in the transaction , or simply the requirement that certain franchisors place on franchisee equity contributions.
While sometimes the franchisee might feel that the down payment requested is onerous it’s often driven by the franchisors experience in the amount of capital required to make a franchise successful. Certain industries carry a lot more risk than others from the lenders and franchisors perspective – a good example is hospitality.
We see a lot of clients initially spending all their time focusing on getting initial financing for their franchise, often forgetting that down the road they will need working capital, new assets, and potentially leasehold refurbishment to stay competitive.
Don’t forget also you absolutely must have a solid business plan, cash flow forecast, and some level of management or business experienced related to your new venture.
Have we forgotten anything? Oh yes, its actual franchise finance solutions!! They include the one or two specialty franchise finance firms that provide turnkey financing. The other popular, and more attainable solutions is utilizing the Govt small business loan which is perfected suited to franchisee finance as it covers assets and leaseholds required to get your business going.
That’s the boot camp overview. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with franchise financing basics that makes sense to achieve successful entrepreneurship in the Canadian franchise industry which is such a key part of our economy these days.
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