YOU’RE LOOKING FOR A FRANCHISE FINANCE SOLUTION!
FINANCING OPTIONS FOR A FRANCHISE LOAN 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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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Funding franchises in Canada shouldn't be difficult, but for many... it is. Let's look at the right way to approach franchise financing in Canada, which by the way, includes simply the right information and the proper assistance. Let's dig in.
YOUR FUNDING SEARCH BEGINS WHEN YOU HAVE SELECTED YOUR FRANCHISE PURCHASE
After the potential franchisee has spent a significant amount of time seeking out the right franchise opportunity, it’s critical to engage your franchisor in the right discussion around financing requirements. While they directly don't finance your new business, they can often provide guidance and direction on how franchisees in their system are financed.
DO BANKS FINANCE FRANCHISES IN CANADA?
In Canada, some of our chartered banks have ' programs' in place with large franchisors with significant ' branding. ‘ (Think donuts/hockey player and clowns/burgers as an example!). It's these types of relationships that can often help a large financing challenge become easier.
More often than not, though, as much as he or she doesn't want to be, the franchisee is in fact on their own. So if they don't have the expertise to understand the lender landscape in Canada they are somewhat doomed to failure.
WHAT ARE THE REQUIREMENTS FOR FRANCHISE FINANCING SUCCESS
For any type of business financing in Canada, it's all about criteria, understanding, and meeting! Being armed with the right information required by a lender will get the ball rolling. That information typically is a solid business plan/executive summary, a financial road map that includes an opening balance sheet and cash flow projections, as well as the usual information around the owner's financial worth and credit score and personal credit history, etc. Many franchisors themselves also insist on good credit for the purchaser of the franchise business.
99.99% of franchisees incorporate their business or purchase an incorporated business, so some of those details need to be attended to also. 7 Park Avenue Financial business plans that we prepare for clients meet and exceed bank and commercial lender requirements. Business owners should ensure they have their personal finances in order.
THE CANADA SMALL BUSINESS FINANCING PROGRAM IS A SOLID LOAN PROGRAM FOR FINANCE PURCHASES
The lending landscape for franchising in Canada, unlike the U.S., can hardly be called ' robust. If you are dealing with a ' specialized' franchise lender the solid alternative utilizes the Canadian govt SBL loan. It funds many new businesses in Canada, and the franchise industry here has found it’s well suited for business funding. It's the Canadian equivalent of the ' SBA ' program.
KEY ELEMENTS OF THE GOVERNMENT GUARANTEED LOAN
Key aspects of the SBL program in Canada include, but are not limited to:
Limited personal guarantee
Competitive start-up pricing on financing
Ability to finance assets as well as leaseholds
Solid structures including 5-7 year typical amortization - competitive interest rate
Some potential franchisees might think that they might receive assistance around the actual final price as agreed to by you and the franchisor. This is NOT the case.
BUYING A NEW OR EXISTING FRANCHISE
Additionally, many entrepreneurs choose to buy an existing franchise for a variety of reasons. Here again, the franchise's actual value must be determined by yourself and the seller. As a general rule franchises in certain industry segments are sold and valued as a % of the actual sales revenue. For example, an existing automotive transmission business typically might be valued at 40 - 50% of actual annual sales revenue.
A QSR (quick serve restaurant) might typically go for 30% of actual revenues being achieved. Suffice to say many other factors should be considered when valuing and financing an existing franchise.
Note that the franchise fee as part of your franchise agreement with the franchisor is typically paid directly by the franchisee and not financed. Franchise agreement terms vary greatly among franchisors.
SOME FINANCIAL METRICS TO CONSIDER IN YOUR FRANCHISE PURCHASE
In financing a franchise in the Canadian marketplaces you should focus on the size of investment required, break-even analysis on sales, expected income for the owner, and ultimately whether the opportunity is a good ' Return on Investment '. Remember also that your business will need working capital of some sort to run on a day to day basis, and the right business loan funding should be addressed for those business needs.
CONCLUSION
In Canada, in certain cases, even franchisors themselves will need financing of some sort. Here issues such as # of corporate/franchise locations, gross chain revenues, and exit or repayment strategies must be on the table.
Financing your franchise can be a challenge. Some even consider the proverbial' friends and family ' which is usually not the best option of mixing your personal and business life. If you are looking for the right way to ' engineer' franchise funding in Canada seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your franchise financing needs for business loans and financing solutions for your entrepreneurial dream.
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Stan Prokop
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