Franchise Business Financing Canada | 7 Park Avenue Financial

YOU ARE LOOKING FOR CANADIAN FRANCHISE  FINANCING!

TIPS TO PURCHASE THE FINANCING OF A FRANCHISE IN CANADA

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        Financing & Cash flow are the biggest issues facing business today

                              ARE YOU UNAWARE OR  DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

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HOW TO FINANCE A FRANCHISE BUSINESS PURCHASE / WHERE IS THE MONEY COMING FROM? 

Franchise financing in Canada  - When Canadian business owners and entrepreneurs ask us what their financing options are for a Canadian franchise, we indicate that the options certainly aren’t unlimited.

Still, several standards and also creative options do exist for a new, turnkey or purchase of an existing business franchise with sufficient funds to be successful.



Naturally, all of these options are supplemented by your own savings or investment when financing a franchise business with proper due diligence on your behalf  - that's what the finance world typically calls ‘owners equity. In the current somewhat difficult, challenging environment, we have observed upward pressure on the amount of owner equity you need to put into the business yourself.

Remember also that working capital is a must for any business and the majority of small businesses, including franchises,  don’t have enough. This can be one reason why so many franchises fail!



You could of course finance a business or a franchise with your RRSP or HELOC - Generally depleting personal savings is not recommended when you can attract solid commercial financing.

Finance companies that finance business franchises look for a reasonable balance of equity and debt, which is the factor in business acquisition.



A bank loan for a franchise business is heavily focused on a high down payment, solid personal credit score and history, and full personal guarantee with the possible need for outside collateral. Government BDC franchise financing may also be a solution to explore with our team. as well as leasing companies participating in the financing of required assets.

Franchisors often have arrangements with leasing companies that allow new franchise owners the ability to finance required new or used assets in the business to help secure funding and help fund the start up costs of any new business venture. Leasing equipment is a smart way to conserve your startup funds and improve the look of your opening balance sheet.

Some franchisees view raising money to buy a franchise business as demanding - but there are other solutions!

 
HOW TO GET A BUSINESS LOAN FOR A FRANCHISE WITH FRANCHISE FINANCING LENDERS   

Most franchises in Canada are typically financed via loans or debt – Canadian franchising does not really lend itself to a venture capital type environment. So, where do those loans or debt come from – typically, it is from traditional sources such as banks, and our firm has found success in effect cobbling together a couple of different financing sources to ‘get the job done.

WHICH FRANCHISE FINANCE SCENARIO APPLIES TO YOU?

When entrepreneurs come to us for franchise financing they are either looking for one of three scenarios – they are:


    Looking to renovate their franchise location

    They wish to purchase a brand new franchise

    They have entered into a purchase agreement to purchase an existing franchise

 

IMPORTANT FRANCHISE FUNDING POINTS TO KEEP IN MIND

Each of the above scenarios is worth mentioning concerning a couple of key points and observations:


Renovating an existing franchise via leasehold improvements or new equipment is probably the easiest financing scenario – as we have a real business already on our hands that is hopefully doing well, making some money, and looking to grow/expand.

New franchises are probably where most of the financing challenge is, like the entrepreneur and his trusted business financing advisor has to sell the lender(s) on the nature of the franchise, the probability of success, the industry business model, etc.

Existing franchises are fairly easy to finance as again. We have a business with sales, assets, and profits already in place. Some owners we work with target franchises that are existing that might not be doing well. They negotiate a fairly reasonable price and have the determination that they can turn the franchise around. Sometimes that is not necessarily as easy as it sounds.

IS THERE A BEST WAY TO FINANCE A FRANCHISE BUSINESS

One of Canada's most popular methods of financing franchises is the Government of Canada guaranteed small business loans. A large majority of franchises are financed in this manner.

 

HIGHLIGHTS OF THE CANADA SMALL BUSINESS FINANCING PROGRAM FOR FRANCHISES

 

Eligibility for any franchise with under $10M or less from an actual or projected point of view.




Loans up to $1 Million are available, with a large portion of the loan guaranteed by the government. An appropriate complete business plan and other key documents supporting the is required to commence the loan process.

The plan should include accurate pro formas, projections, and cost analyses; estimates of working capital (both current as well as future needs); information on your good credit and net worth and personal finances and people skills, all of which will help ensure success in this new venture as well as marketing strategies that are planned for the company's first few years - 

.7 Park Avenue Financial prepares proper business plans for our clients' franchise plans as part of their loan application needs.



Loans are used to either purchase the building/land, new equipment, and leasehold financing improvements.



Repayment terms and rates are desirable and similar to traditional financing that is available to non-franchise businesses.



We can’t overemphasize that the ‘financing’ aspect of the business purchase should be entered into very early on in your whole process. Typically you have selected a franchise or are entertaining a couple of different options.



In the last couple of years, we have been made aware of specialized firms that match your own business traits and style with the type of franchise that would most suit you. Not everyone is cut out to sell donuts and pizza. We find some owners look at the appeal of potential revenues and profits and not into the issue of ‘does this franchise suit my overall business style, work ethic, and skills.

 

BUSINESS AND MANAGEMENT EXPERIENCE IS A GOOD THING!


 

‘Skills' – Let’s focus on that for a moment. In our experience, owners stand a significantly better chance of success when they have some industry experience – We are not saying you can’t be successful with no industry experience, but certainly, those chances improve, and we hasten to add that issue is one criterion of any lender – i.e. does this business owner have the skills to run this business daily and grow and profit?


In summary,  when it comes down to how to get financing for a franchise finalize your franchise purchase agreement and start early on in your process to determine a financing strategy that works and will complement your skills and investment.

When it comes down to how to finance a business loan for a franchise in Canada you can rely on the advisory services and financing expertise of a trusted, credible and experienced Canadian business franchise advisor with a track record of business financial success who will work with you through the entire financing process. Call the 7 Park Avenue Financial team today to discuss your financial requirements for a franchise purchase.

FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO ASK / MORE INFORMATION

Can I get a business loan to buy a franchise?


Traditional Canadian chartered banks and credit unions can be a source of financing for a franchise business purchase. Franchisees can also apply for the Government of Canada Small Business Loan Program which is extensively used for franchise purchases.

The franchise fee can now be financed as part of the SBL loan program. Franchise fees were previously not financeable and it was incumbent on owners to fund the fee to the franchisor under franchisor financing requirements for approval.

The program has a very competitive interest rate and only a partial personal guarantee is required.

In the U.S. these loans are known as SBL loans under a similar but more robust government loan program for franchises and small businesses.

Government grants are not accessible for the purchase of a franchise.


Is it hard to get a business loan for a franchise?


Getting financing approval for a franchise loan can be challenging if borrowers do not have any personal equity for the start-up or if they have a poor past personal credit rating/credit report history. Credit bureaus are the best source of verifying owner credit.  In some cases the track record of the franchisor may be a factor in the funding challenge - numerous options to fund franchises are available with proper preparation and information.



 

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