How To Finance A Franchise In Canada

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EMAIL - sprokop@7parkavenuefinancial.com

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

 

 

Financing Your Franchise in Canada: A Comprehensive Guide 

Introduction

 

Embarking on a franchise venture in Canada? Worried about financing hurdles? It's a common concern for budding entrepreneurs. However, understanding the nuances of financing franchises can turn this daunting task into a manageable one. Here's your essential guide to obtaining a franchise loan in Canada.

Decoding Franchise Financing Options

What’s Available to You?

 

Determining the right kind of franchise finance solution is the first step. Whether you're launching a service-based venture or stepping into the hospitality sector, you need to blend term loans with working capital. Understanding your franchise's cost and associated risks is paramount.

The Importance of Creditworthiness A strong personal credit score not only smoothens your franchise loan approval process but also fetches competitive interest rates. A solid financial plan further elevates your chances of acquiring optimal loan terms.

Franchise Popularity in Canada

 

An interesting insight by Franchise 101 reveals the growing popularity of franchises. With approximately 76,000 outlets and a new one opening every 2 hours, franchises are becoming a mainstream business model in Canada.

Personal Investments: The Equity Component

Your own financial Stake: It's imperative for franchisees to inject personal funds into their venture to demonstrate their own equity position. This showcases commitment to both lenders and franchisors.

For those questioning, "Can I finance a franchise without any money?" the answer is clear: No. A harmonious blend of debt and equity is essential for success. In many cases, financing via multiple lenders might be needed to cobble together a full financing.

 Importance of Business Plans and Cash Flow

Crafting a Viable Repayment Strategy Incorporate your equity investment into your cash flow projections. A comprehensive balance sheet, reflecting both equity and financing, offers a clear snapshot to financial institutions. 7 Park Avenue Financial specializes in creating robust business plans, ensuring they align with lender requirements.

Navigating Franchise Loan Structures

 

Understanding Loan Terms -  Common franchise loans span between 5 to 7 years, enabling you to offset your debt within that timeframe. While considering future needs like asset replacement or working capital, remember that government-guaranteed loans, such as the Canada Small Business Financing Program, offer reliable franchise financing solutions. A notable 2021 amendment even allows financing the franchise fee as a loan component.

 Maintaining Realistic Financial Assumptions

Grounding Your Projections: While optimistic forecasts can be tempting, it's crucial to ground them in reality. This includes factoring in revenue timing, asset costs, growth rates, franchise fees via the franchise agreement, and the need for business lines of credit around day-to-day operations.

Embracing Financial Fundamentals / Beyond Just Sales

 

 

While sales are essential, a deep understanding of repayment structures, profits, cash flow, and fixed costs is equally crucial. Grasping these elements can significantly impact your franchise's success.

 

 

Conclusion 

Conclusion Navigating the franchise financing landscape in Canada might seem overwhelming, but it doesn’t have to be. While external collateral might not always be required, ensuring that your financial projections are sound is vital. Leveraging expertise, especially from trusted Canadian business financing advisors like 7 Park Avenue Financial, can steer you toward your franchising goals with confidence.



    

FAQ: FREQUENTLY ASKED QUESTIONS    

 

 

  

What Is Franchise Financing?

 

  

The franchise business model will typically require a combination of owner down payment, aka personal equity, and external financing.  The capital provided to finance a franchise will be a combination of an acquisition term loan and potential combinations of lines of credit and equipment financing. In certain franchise models, real estate might be a component of financing required.

 

Franchise financing is the funding you need to start or expand a franchise business. In Canada, it's essential because it provides the capital necessary to enter the competitive franchise market and realize your entrepreneurial dreams via small business loans suited to the financing you require.

Generally speaking franchisor financing, i.e. funding from the franchisor, is not available- Franchisors sell franchises, they don't finance them!  The franchise disclosure document provided by franchisors is a key read for prospective franchisees.

 

Do banks give business loans for franchises?

 

Canadian chartered banks and some credit unions provide franchise loans at a good interest rate. Still, the process to complete a  franchise  bank loan might be considered time-consuming because of the need for business financial statements around business credit, and buyer information, - as well as the requirement to provide personal collateral in the form of mortgages, and home equity loans and lines of credit by the franchise owner/business owner backed by a good credit report and personal credit history and  minimum credit score in the 600+ range

 

  

What type of down payment do you have to put down to acquire a franchise?

 

Franchisees looking to fund a franchise will normally be required to put between 20-50% down. The down payment varies based on a number of factors, including the type of financing, loan amount, and creditworthiness of the borrower.

 

 

What types of franchise loans are available in Canada, and how do I choose the right one for my business?
 

Funding for franchise owners via Canadian franchise loans for a franchise purchase comes in various forms, including traditional commercial bank loan funding,  Government Small Business loans, and franchise-specific financing options from non-bank alternative lenders who compete with traditional lenders such as chartered banks and credit unions. Choosing the right one depends on your financial situation and business needs when it comes to franchise businesses.

 

Are there any unique benefits to franchise financing in Canada compared to other countries?
 

Yes, Canada offers stability, a strong franchising ecosystem, and government support programs for small businesses, making it an attractive destination for franchisees. These factors enhance your chances of success.

 

What challenges might I face when seeking franchise financing in Canada, and how can I overcome them?
 

Challenges may include stringent lending requirements and competition for loans. Overcoming them involves thorough business planning, financial preparation, and seeking advice from experts in franchise financing and the franchise brand you have selected. The International Franchise Association is a good source of franchise information.

 

How can franchise financing empower me to achieve long-term success in the Canadian market?

 

Franchise financing provides the necessary capital to launch or grow your franchise, giving you the resources to build a strong brand presence, attract customers, and secure a profitable future in Canada's dynamic business landscape.

 

Click here for the business finance track record of 7 Park Avenue Financial

Business Franchise Loan ? The Before And After Of Franchising Finance In Canada

When You Finance Your Franchise It Doesn’t Have To Be Gut Wrenching !

OVERVIEW – Information on the business franchise loan in Canada . Franchising finance offers different challenges in Canada prior to and on approval of your business purchase




Business franchise loan challenges. When it comes to financing a franchise in Canada there's some critical ' before and after ' issues that need to be address. When they aren’t addressed properly the situations becomes... shall we say ' gut wrenching'! We'll examine some of those key points. Let's dig in!

Your initial decision to purchase a franchise should always be tempered with the amount of funds that you can personally invest in the business. These day's those funds come from savings, equity lines of credit, and in some cases corporate severances.

Knowing the amount that you can comfortably commit to the business will play a key role in both the size of franchise you buy, as well as the financing you can arrange in this somewhat specialized field. Frankly, in Canada franchise funding comes from the smallest handful of resources - a specialized franchise finance firm, a bank loan, and some ancillary financing services such as equipment finance, leasehold finance, and merchant advances when it comes to working capital needs.

We reference banks, but by far the amount of financing that the Canadian banks deliver is through a vehicle known as the BIL/CSBF loan program. It's the government program that over time has become the de facto vehicle to finance many of the franchises in Canada. Challenge arise when you are purchasing a service franchise as the BIL program is tailored more specifically to assets and leaseholds and real estate on some occasions.

Can the size and quality of the franchisor you are working with affect your business franchise financing success? To a certain degree the jury is always out on that one - suffice to say that some franchises are viewed as a bit more risk or somewhat more or less successful than others .

Also, as a point, when a franchising loan is under consideration in Canada it in fact does not make a real difference if your franchisor is Canadian, U.S. based, or in some cases you might simply be working with a Master Franchisee who has purchased the rights to your overall territory.

Your business plan and cash flow document are critical to finance success. In fact while the business plan is needed before you start your franchising process it can become a key valuable document in benchmarking your success down the road as compared to your original aspirations /projections.

Personal finances are a key part of the overall franchise finance process. You will need good reasonable credit history for your borrowing , and you will want to ensure that in your financial due diligence you assess the fact that your business will generate cash flow and profits that will allow you to draw a decent income based upon your needs .

When it comes to the franchising loan you want to ensure that your finance package addresses both the needs of the lender (i.e. repayment of your loan) as well as your ongoing working capital needs. Financial projections we see from clients are often not realistic, which can create some serious ' start up ' problems when it comes to financing on going operations.

At the end of the day the whole business franchise loan process requires both a ' before and after ' approach. Careful planning and utilizing guidance from your franchisors experience will get you to the goal line.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with franchising finance needs in the Canadian marketplace.



Stan Prokop - founder of 7 Park Avenue Financial –


http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies 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 = BUSINESS FRANCHISE LOAN FINANCING



7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com














Stan Prokop

Business Franchise Loan Challenges ? Here’s How Franchising Loans Really Work In Canada

Professional Tips on Franchise Finance In Canada

OVERVIEW – .Information on the business franchise loan in Canada. What You need to know about franchising loans for entrepreneurial success in this industry



Business franchise loan challenges in Canada? We're the first to admit that the concept of getting a ' tip ' in business is not always a good thing but we’re drawing from successful experience in franchising loans that assist clients who are serious about entering this type of business.. and being successful!


There is of course a long journey between the time you decide to purchase a franchise to the time that ribbon opening! Along the way you have been vetted by the franchisor, investigated and researched your purchase decision , probably spent some time in training and orientation, and... Oh yes, we forgot... faced the finance challenge of buying the business!

Many franchisees either struggle or are uninformed about how much equity, aka ' down payment ' they have to put in the business. We forgive them for this confusion because it’s a three pronged issue -

1. How much capital the owner can comfortable raise or put in

2. How much equity capital is required by the type of financing you ultimately enter into?

3. How much capital in some cases that the franchisor insists on as a prerequisite to entering into their program - typically that amt. is one to listen to carefully as its often based on the franchisors experience as to what it takes to be financially successful, not just ' sales and revenue successful '!

While Canadian chartered banks have in essence recognized and embraced the franchise industry as a key borrowing segment it is very important to note that almost never to they finance franchises directly - even less so when it's not an ' asset heavy ' deal . So what our banks do is to carefully tailor some large national programs around the franchisors willingness to work with them in a worst case scenario - i.e. The financial failure of your business!

If you are fortunate enough to acquire a business that’s a part of a very large and successful respected chain you should be congratulated and might find some financing solace. If that is not the case one of the best possible solutions for your financing decision comes from an acronym. And that acronym? It's the BIL loan program which hundreds/thousands of franchisees use to facilitate the financing of their franchise if the purchase price is under 350k - which is the program finance cap.

Whether you are borrowing from a specialty franchise lender (yes they do exist) or from a bank or commercial finance firm it’s important that the franchisee demonstrate reasonable personal financial history. That of course means that you can demonstrate that you have run your personal finances in a manner that reflects how you would run your franchise.

Lenders and even the franchisors themselves can easily verify your personal financials via credit bureau reports, statements of personal asset, etc.

Understanding the up front challenges of franchising loans will save you time, money and ultimately guarantee financing success. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your business franchise loan needs.





Stan Prokop - founder of 7 Park Avenue Financial –

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies 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 = CANADIAN BUSINESS FRANCHISE LOANS


CONTACT:
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com












Stan Prokop

Canadian Franchise Financing Loans ! 3 Things You Wish They Had Told You About A Business Franchise Loan

What You Need To Know To Finance A Franchise In Canada

Information on how to successfully obtain a business franchise loan in Canada. Financing loans for franchising success . Use these key pieces of advice to make entrepreneurship a reality .



If only I had known! That's one of our clients talking about a business franchise loan in Canada. The financing loans for franchising in Canada is often a major challenge.

Let's examine 3 key areas of the franchise financing dilemma and help you get to the goal line on what is surely one of most rewarding and sometimes daunting business journeys that you have been on.

And what are those 3 things you sure wished they had told you previously? They are as follows - there is a unique program specially designed to cover off the majority of franchise financings in Canada. Who knew! Secondly certain aspects of your franchise business can be financed, certain things can’t. You need to know what's what and plan accordingly. Thirdly... it’s all about that word plan, because if you are 100% prepared, with a basic package, your chances of getting a business franchise loan financing approved increase commensurately. We can pretty well guarantee that.

We have always agreed that a franchise purchase in Canada is a great way to balance entrepreneurial risk. The range of opportunities available to you seems to grow every day, and if you are working with the right people and the right institutions you're in a position to capitalize on that success.

We talked about the necessity to be prepared. There was a study done in the U.S. and we're pretty sure it mirrors the Canadian experience, that over 80% of loans to new small businesses ( that’s kind of what a franchise is , wouldn’t you agree ?) are declined only for the one reason that the applicant wasn’t fully prepared with respect to a quality package of basic information.

And what those business folks hear about how basic some of those requirements are it must be downright embarrassing to know franchise financing loans weren’t approved simply because you didn’t cover off the basics.

We also point out to clients that a business franchise loan in Canada can cover of purchasing a new turnkey location, and in fact can also pertain to financing an existing franchise within the chain you are focusing on. This scenario of course requires full co operation and disclosure from both the current franchisee as well as the franchisors permission for you to complete the transaction.

Many franchisees ' turbo charge ' their chances of financial freedom and progress by adding additional units to a franchise they already own, thereby building their own mini empire! All power to them of course. We do caution clients though that it’s important to set up separate legal entities for each of those locations from a view point of risk and accounting implications.

So, what can be financed, and what can't. Typically what are financeable in a franchise scenario are leaseholds, equipment, real estate if applicable, and items such as software of POS systems. What is not financeable, much to the chagrin of a lot of our clients is inventory, as well as the franchise fee, prepaid rents, consulting you may have needed, etc.

The Government CSBF/BIL program which is administered by the banks is your quick and accessible solution for franchise financing under $350,000.00. It works great for starting any new business, and rates, structure and other aspects of the program such as limited liability make it almost perfect for what you want to achieve.

So... if only you had known! But now you do. So speak to a trusted, credible and experienced Canadian business financing advisor for franchise financing loans that make sense and are achievable under your personal circumstances.


Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing .Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/business_franchise_loan_financing_loans.html

Notes From The Trenches – Canadian Financing For Franchises – Get Your Business Franchise Loan Right !

It's sometimes just the thought of wondering how financing for franchises works, and if in fact you will be approved for a business franchise loan that gives you discomfort. Let's examine whats happening in franchise finance today out there in the trenches, aka the real world!

It's pretty clear to yourself that when you're contemplating the purchase of a franchise you will need financial assistance via a franchise loan to complete your project. Those funds in effect compliment or complete your equity, i.e. your own investment into your new business. We point out to clients that the same challenges and issues pertain to whether you're purchasing a brand new ' turnkey ' operation or if you are purchasing from an existing franchisee who is selling.

P.S. Don't forget to ask why the franchisee is selling?!

So where is commercial lending at Vis a Vis Canadian franchise financing? Do you have to do a lot of homework to investigate how to successfully complete a franchise finance loan?

Naturally in a perfect world ( its not always perfect as you may have observed ) you're looking for financing that completes your transaction, has reasonable rates, and provides you with a term on the loan that is suitable for both cash flow and repayment .

In Canada franchises are financed successfully in a number of manners - but it’s certainly not a large choice, so it’s important to focus early on, on what you can achieve and with whom. There are one or two specialty franchise finance firms but these firms typically focus on the relationships they have with some of the largest an well know franchisors, many of whom have franchises for sale in the 1 Million dollar ++ range . That isn’t for everyone of course.

It's actually the Canadian government (that’s a surprise!? that has a huge role in financing for franchises in Canada, but in a somewhat indirect method. They sponsor a loan program called the BIL/CSBF loan that provides financing for a huge amount of franchisees in Canada. The program is clearly a champion of small business, on which franchising is of course based - independent owners and operators working with success franchisors in Canada.

The government in effect guarantees a very large percentage of the loan, allowing you to receive those rates, terms and structures that are absolutely some of the best financing terms in Canada, bar none.

What do you need to do then to get your franchise financing house in order then? It's not a cake walk, but quite frankly is not as hard as you think to accomplish your goal of a success business franchise loan.

You want to be able to ensure that you're prepared - naturally you would do that for any business financing you would ever contemplate. You need to be able demonstrate a reasonable personal credit history ,as well as some level of either general business knowledge or industry specific knowledge relative to the industry within which your franchise is located, i.e. restaurants, service business, etc.

It's important to have a clear cut business plan that demonstrates how your financial package looks, i.e. how the combination of your own equity and the loan will allow you to acquire the franchise, and, of great interest to the lender, repay the loan.

Will your franchisor help you in all this? Yes... and no. It's our observation that franchisors are focused on selling franchises, not financing them! So be prepared to carry the weight of most of the work in completing you’re financing for franchises.

Want some help? There’s lots out there. Consider talking to a trusted, credible and experienced Canadian business financing advisor who can assist you to achieve your goal as a successful franchisee in the booming Canadian franchise market.




Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/financing_for_franchises_business_franchise_loan.html

How Much Will A Business Franchise Loan Cost When Financing A Franchise In Canada ?

The cost of a business franchise loan is often the first questions clients ask when talk to us about financing a franchise in Canada.
5.5% is the answer. So that’s it – end of story – you have your answer! Of course we're being a bit facetious because what we are referring to is simply the current interest rate on the most popularly utilized loan vehicle for franchise financing in Canada. Cost is of course one thing, getting approved, executing on your franchise financing properly, and finally not entering into the wrong type of financing strategy is another issue altogether.

Let’s examine the challenge and the reality of franchise financing as it relates to costs, methodology, and, as we said, doing it right.

If you aren’t aware of the specialized methods of franchise financing in Canada and that most popular loan vehicle we discussed then you certainly are a poorly informed and at risk entrepreneur in the franchise environment . Simply walking into a bank and asking for a franchise loan in Canada does not work , as the bank views a new franchise, as it does any other business frankly, as totally based on the 100% collateral and credit worthiness of you the borrow .

If that’s the case then, our clients ask, why have they heard that thousands of franchisees in Canada get bank financing? Good question! It’s simply that the majority of financing in Canada is done under a specialize program called the CSBF /BIL program, which is under the auspices of the government and administered by the banks. That key word is administered by the banks.
So what is the cost of that loan? In terms of a pure what is the interest rate? Question the answer is 3 over prime rate, which currently in Canada would bring the transaction to the 5 1/2% range. (As prime changes this rate might fluctuate).

But if you as a franchisee are looking for a business franchise loan and financing a franchise properly the other features of this specialized loan are even more compelling - they include a limited owner guarantee, a loan size of up to 350,000.00, and other enhancements. That cost, when financing a franchise in Canada is clearly the best deal in town if you accept that a franchise is a new business - which of course it is, but we acknowledge the franchise is of course built on a successful business model of the franchisor.

Remember also that the cost when financing a franchise in Canada is based on the amount you borrow - unfortunately it cant be 100% because business finance dictates it is both prudent and required that you put some of your own equity in the deal - the more you have invested personally the less financing cost you have, that’s understood of course .

In the U.S. We are told there are specialized tax strategies to take money out of RRSP type accounts without being taxed, to finance your business - that really doesn’t work in Canada and your cost of a business franchise loan will go up considerably when you add in the tax penalty bite of collapsing your savings vehicle.

So. in summary financing a franchise in Canada is achievable - however its specialized, and some of the programs utilized by franchisees are highly specialized to the industry . Finance your new business properly by speaking to an expert is strongly recommended - seek a Canadian business financing advisor who is experienced, credible, and trusted who will help you solve the cost dilemma of financing a franchise in Canada .

-


Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

http://www.parkavenuefinancial.com/business_franchise_loan_financing_a_franchise.html