How to Finance a Franchise in Canada: A Comprehensive Guide | 7 Park Avenue Financial

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Crack the Code: Demystifying Franchise Financing in Canada

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Are you a business borrower struggling to secure financing for your franchise venture in Canada? Discover the essential steps and strategies to turn your franchise dreams into a reality

7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer CANADIAN FRANCHISE FINANCING solutions that solve the issue of getting a franchise loan  – Save time and focus on profits and business opportunities

Introduction:  Exploring Franchise Financing Challenge 

The cost of a business franchise loan is often the first question clients ask when talking to us about financing a franchise in Canada. 8.5% is the answer.  ( 2024) So that’s it – the end of the 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 your franchise financing properly, and finally not entering into the wrong type of financing strategy is another issue altogether.

The journey of financing a franchise for business ownership in Canada can be both daunting and exhilarating. Aspiring entrepreneurs often find themselves at a crossroads, grappling with the complexities of securing the necessary funds to turn their franchise dreams into reality.

Let the 7 Park Avenue Financial team help you understand the intricacies of franchise financing - from specialized loan programs to capitalizing on strategic funding opportunities - Mastering the art of financing is the key to unlocking the doors of franchise success.

Navigating Franchise Financing Realities

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

Specialized Methods of Franchise Financing

If you as a prospective franchise owner aren’t aware of the specialized methods of franchise financing in Canada and the most popular loan vehicles 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 creditworthiness of you the borrower.

Understanding the CSBF/BIL Program

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 specialized program called the CSBF/BIL program, which is under the auspices of the government and administered by the banks. That keyword is 'administered' by the banks. A good credit history of the borrower is required and a personal credit score in the 600+ range is required.

Exploring Loan Costs

So what is the cost of that loan? In terms of a pure, what is the interest rate? Question the answer is 3 over the prime rate, which currently in Canada would bring the transaction to the 8 1/2% range. (As prime changes this rate might fluctuate). ( 2024)

Additional Features of Specialized Loans

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 1.1 M dollars , 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. Government Of Canada BDC offers these franchising tips

Considerations on Loan Amounts

Remember also that the cost when financing a franchise in Canada is based on the amount you borrow - unfortunately, it can't 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.

Tax Strategies and Financing Realities

In the U.S. we are told there are specialized tax strategies to take money out of Registered Retirement Savings Plan ( RRSP )-type accounts/  tax free savings account without being taxed, to finance your business via your own equity position/contribution - 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. Home equity loans are often used to bolster personal equity positions in the business investment.

Key Takeaways

1. Franchise Financing Programs: Understanding the available financing programs for franchise owners tailored for franchises provides a foundational understanding of the financing landscape.

2. Loan Application Process: Mastery of the application process ensures borrowers navigate the bureaucratic hurdles effectively.

3. Funding Options and Alternatives: Exploring diverse funding avenues beyond traditional loans such as the Government business loan offers flexibility in securing capital around start up costs for a loan request.

4. Understanding Interest Rates: Insight into interest rate dynamics empowers borrowers to make informed financial decisions.

5. Collateral and Credit Requirements: Grasping the significance of collateral and creditworthiness elucidates the prerequisites for loan approval.

 Conclusion 

So, in summary, financing a franchise in Canada is achievable - however it's specialized, and some of the programs utilized by franchisees are highly specialized in the industry.

Finance your new business properly by speaking to an expert is strongly recommended - Call 7 Park Avenue Financial, a  Canadian business financing advisor who is experienced, credible, and trusted and who will help you solve the cost dilemma of financing a franchise in Canada.

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