Franchise Financing Guide: Canadian Business Loan Options

Financing A Franchise Business Purchase Loan In An Economic Downturn ?

Canadian Franchising Loans Explained!

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Understanding Franchise Financing in Canada

The right approach is definitely what's needed to finance a franchise business purchase in somewhat challenging economic times.

Traditional Banking Options

Most aspiring franchisees in Canada look to banks and specialized finance firms when investigating purchasing a new or existing franchise business. Let's investigate successful criteria and methods for purchasing such a business.

The Role of Canadian Banks

Do Canadian banks finance a franchise? That naturally is the automatic first 'go to' when it comes to the entrepreneur's choice of completing a business purchase in the franchise industry. Broadly speaking they don't specifically finance franchises outside of specialized government or franchisor programs.

Personal Credit Requirements

Just how important is your personal credit history as well as your overall financial profile? The finance folks call your personal net worth—simply speaking, 'what you have' and 'what you owe'! We assure clients that a strong emphasis is placed on your personal credit and business background. Typically, you would want a 'beacon score' at the credit bureau to be in excess of 650.

Government-Backed Financing Programs

So if the banks don't finance franchises in Canada, who does? Are you ready? Banks! What do we mean by that apparent contradiction? Simply that the majority of franchises in Canada are financed by the banks, but via vehicles known as the BIL/CSBF loan. It's a program run by the federal government that many banks have adopted as a solid vehicle to finance franchises in Canada.

Understanding BIL/CSBF Loans

The basics of the program lend themselves pretty perfectly to financing a franchise business purchase, and the structure of these loans fits what you are trying to achieve. Why? Simply because the terms of the loan are from 5-7 years, rates are commensurate with many other types of business financing, with the 'kicker' being that you only are required to guarantee 25% of the loan.

Franchisor Support and Financing

Will a franchisor step in to help you finance your business? We get that question a lot, and the answer generally is 'NO'. In a number of cases, though, franchisors have worked out packages that can more easily facilitate the bank completing financing. This tends to work with larger brands and larger business acquisitions in franchising. The bottom line: Don't expect internal financing from your franchisor.

Keys to Success in Franchise Financing

Other key aspects of successfully financing a franchise in a downturn are common-sense business elements—a solid business plan, locating a banker or financial advisor who is experienced in franchise loans, and aligning yourself with a successful franchisor based on your personal and business background.

Frequently Asked Questions About Franchise Financing

Q1: What is the minimum investment needed for a franchise purchase?

The minimum investment varies by franchise but typically requires 20-30% down payment of the total cost. Through government-backed programs like BIL/CSBF, you may only need to guarantee 25% of the loan amount personally.

Q2: How does the BIL/CSBF loan program work?

The Business Improvement Loan (BIL/CSBF) is a government-backed program offering terms of 5-7 years with competitive rates. It's specifically designed for business purchases and requires only a 25% personal guarantee.

Q3: What credit score is needed for franchise financing?

Most lenders require a minimum credit score of 650+ for franchise financing consideration. However, your overall financial profile and business plan are also crucial factors.

Q4: Can new entrepreneurs qualify for franchise financing?

Yes, new entrepreneurs can qualify, mainly through government-backed programs. Key requirements include a strong business plan, adequate down payment, and a good credit history.

Q5: How long does the franchise financing process take?

The financing process typically takes 4-8 weeks, depending on the deal's complexity, your application's completeness, and the type of financing sought.

Franchise Financing: Complete Guide To Business Purchase Loans in Canada | 7 Park Avenue Financial