Franchise Financing Canada Process And Approvals 7 Park Avenue Financial

As a prospective franchisee you are either looking to purchase a turn-key new opportunity from a franchisor or master franchisor, or you may perhaps be entertaining the purchase of an existing franchise that is already established. It goes without saying that you should carefully examine in that instance why the current franchisee is selling.  More often than not it is because the current franchisee wishes to move on to another business or career, but you should examine why he is leaving for all the obvious reasons.

HOW CAN A FRANCHISE BE FINANCED IN CANADA

There are some innovative ways to finance your franchise in Canada.  So how are franchises actually financed? The majority of them are done via a government program called the BIL (also known as CSBFL) program. This program is subsidized in rate and structure by the federal government and in our opinion is, bar none, the best small business financing program in Canada. It can of course be used for existing and new franchises. The program offers rates and structures that even larger corporations can’t achieve – i.e. Longer terms and amortizations, very competitive rates, and limited personal guarantees.

WHAT IS A VENDOR TAKEBACK = ' VTB'

When clients approach us with transactions that are more difficult to structure an often used strategy we employ is the VTB. That stands for vendor take back and allows the current owner in effect to reduce the total financing cost for the customer considerably. The owner takes a promissory note arrangement from you and these notes are structured for maximum flexibility to both parties.  Let's to a quick example to show you the power of the strategy.

Let's say you are purchasing a franchise for 400,000.00.  The monthly payments on a 5 year loan for that amount of funding would be approx 7600.00. If the seller was willing to accept a 75,000 note from yourself to repay this portion later your new finance amount is 325,000.00 and your monthly payment is now only 6200.00.  It goes without saying it’s easier to make a 6.2k / mo payment than a 7.6k / mo payment!  In circumstances such as this good negotiating and the good intentions of all parties are required, that’s what makes a deal work when both parties adopt a win-win attitude.

Typical franchise loans tend to be in the 100-350k range in our experience. Much larger loans often involve the most well-known names in their industry, and in many cases might have some real estate attached to the transaction.

We have found with great success that the ‘cobbling together’ of a franchise financing is, in the current economic environment, the most successful strategy. That usually involves our previously mentioned BIL franchise loan, perhaps some equipment leasing, and in some cases an unsecured working capital cash flow loan. A total package usually comes with a business Visa and an initial operating line of credit to suit the overall needs of the business.

To properly execute your franchise financing strategy you require a business plan and some careful planning around what you need to purchase the business, and, as importantly how you will finance future cash flow, inventory, and growth needs.

In summary, franchise financing in Canada is unique and a specialized type of financing. We strongly suggest you seek and utilize a business financing expert in this area in order to help you determine your overall needs and how you will execute on a successful franchise financing. It's step one to being a new successful entrepreneur!

' Canadian Business Financing With The Intelligent Use Of Experience '

 STAN PROKOP
7 Park Avenue Financial/Copyright/2024

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil