You Are Looking for Franchise Financing In Canada!
Business Financing For Franchise Opportunities
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Financing & Cash flow are the biggest issues facing business today
Unaware / Dissatisfied with your financing options?
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Email - sprokop@7parkavenuefinancial.com
FIND THE MONEY IN FRANCHISE FINANCE OPTIONS IN CANADA
The reality of owning your own franchise business should not be overshadowed by the risk of not obtaining the right, and full amount, of franchise financing you need for a franchising loan when it comes to what business owners consider ' traditional financing options. ' Any franchise requires a certain amount of capital.
Let’s examine the right, and a wrong way, of franchise loans and lending in the current environment for borrowers looking for solid funding at favourable terms. Many franchises vary greatly around the need for financing.
UNDERSTANDING FRANCHISOR REQUIREMENTS
What should you know before financing a franchise purchase? The ground rules on what constitutes an acceptable down payment for your investment vary with the type of financing - One rule of thumb states that 20% down will cover about 80% of the funding required.
Franchisors have two requirements: a minimum net worth of assets over and above debts, as well as liquid cash on hand to cover unanticipated startup expenses.
STARTUP COSTS
When buying a franchise, be sure to take into account all the costs of starting up. The initial investment is often greater than many clients realize. It should include the franchising fee and startup expenses such as signage for grand opening day or an inventory on hand when the doors open for business, as an example.
Many prospective new franchisees don't know that franchisor financing is generally never available in the franchise system - franchisors sell franchises and provide marketing support - they don't finance them!
The right amount of financing you need for your acquisition is often a somewhat stressful time in the total process of buying a business in this segment of Canadian business owners.
THE PROCESS OF FINANCING A FRANCHISE
Commercial lending for financing a franchise in Canada does exist. In fact, it exists. It’s a situation of knowing what’s available from franchise financing companies and other institutions and then, of course, executing on completing the financing. Sounds simple, but many Canadian would-be entrepreneurs often find themselves challenged by the whole franchise financing journey... And in reality, it’s a process, not a journey.
In a perfect world, you are looking for a franchise loan that has low or at least acceptable interest rates, nominal fees associated with the transaction, and has the right term or maturity that suits your payback plans and general cash flow situation.
But, does such a loan exist? It actually does, and you'd be surprised where you might find it. Many clients tell us they have spoken to the Canadian bank with whom they typically have had a long-term relationship, only to find that little information has been forthcoming about how they might be able to finance their new business venture successfully.
Naturally, any bank that finds you willing to personally pledge and collateralize your home, savings, etc., is very anxious to have your business and approve that loan, but is mixing your personal assets with your business venture the optimal solution? We find it rarely makes sense to follow that strategy, but hey... that’s just us.
In Canada, the financing options of franchise lending and loans are available, but somewhat less limited than in the U.S. . . . In the United States ' SBL LOANS ' dominate the industry. One or two large firms dominate the major franchise financing opportunities in Canada - these firms focus on the largest name brands and larger transactions that, in many cases, can range up to several million dollars in total financing required via conventional lenders to secure funding.
But what about the hundreds, even thousands of franchise loans that are required for purchases in the 100-500k range. Who finances those, and if they are financeable, does the financing come with those low rates and great terms and structures we spoke of previously?
USING GOVERNMENT LOANS TO FUND YOUR FRANCHISE PURCHASE
Actually, the Canadian BIL/CSBF loan program addresses that question pretty perfectly. It finances your franchise on terms that compete with the big boys. Franchisees need to know that in some cases, government loans have a cap of 1 Million dollars - typical transactions top out at a 350k limit. And we're always rooting for the little guy - who wants a repayment term that makes sense.
Lower interest rates are also a cornerstone of government loans in Canada.
Recent changes in the Canada Small Business Financing Program allow for franchise fee financing that is part of any franchise agreement included as part of a franchise business loan. Previously, funding initial franchise fees were not possible for aspiring franchisees. That means less of an onerous downpayment by franchisees!
In some cases, real estate might be a part of your franchise location funding related to leasing terms, etc. Government loans are always structured as term loans with fixed installments over a typical 3-5 year term.
Talk to 7 Park Avenue Financial about which financial institutions/credit unions participate in the program as these small business loans are utilized by thousands of business owners annually.
We'll also demonstrate how alternative lenders with less stringent requirements around funding, such as business credit lines, can assist in your franchise funding success with short-term loans and credit lines for working capital as an additional financing option - with repayment terms and shorter turnarounds in approvals that work.
PERSONAL FINANCES
Note that a good credit score and personal credit history/net worth are qualification standards from all franchise lenders. Whether you are buying an existing business franchise or a new build turnkey solution, your overall financial history is important.
The BIL program assists business purchasers such as yourself to effectively finance the franchise you wish to purchase, providing franchise financing options that make sense around interest rates and payment flexibility. Rarely will your franchisor be able to assist you with financing. Hence, your ability to prepare a solid 'package' of info and position the package from a solid financial point of view is critical.
Franchise financing lenders require a solid business plan - 7 Park Avenue Financial prepares business plans for clients that show project costs and total cost and financial projections, and other factors that meet and exceed bank and other commercial lender requirements to show business profitable repayment capability.
Other financial solutions such as specialized equipment and asset financing can also round out your financial solution.
CONCLUSION - FRANCHISE ACQUISITION FINANCING IN FRANCHISE SYSTEMS
Small businesses such as franchises are the heart of the Canadian economy - -You may think it's too late to invest in a franchise, but this is actually a perfect time. The current economic environment and market conditions make buying into an established company or startup risk of failure much safer than you would expect.
The bottom line? Franchise financing should not be a risky or stressful time to complete your business acquisition as a franchise owner. Speak to 7 Park Avenue Financial. A trusted, credible, and experienced Canadian business financing advisor can help you complete franchise financing with lending that makes sense with advisory services that make sense for successful franchisees today.
FAQ: FREQUENTLY ASKED QUESTIONS
How do you qualify for franchise finance funding?
To receive a franchise loan, you must first qualify by meeting the franchisor's requirements. Qualifying is similar to qualifying for any other type of loan; however, when applying for financing, make sure all your personal information is accurate so that no mistakes are made in the process and prevent delays in getting approval. You will also need an acceptable credit history before being considered as a borrower or applicant.
Check your credit history before applying, and ensure all information is accurate to be reliable with potential lenders like government-guaranteed loans. If borrowing money from an existing business, the small business score may come into play.
What is the risk of buying a franchise?
One of the essential factors to consider when purchasing any business is whether or not you will have enough money on hand for your initial investment and ongoing expenses (learning how different types of loans work). Investing in a franchise requires similar consideration as starting any new business venture: what type of loan do I need? Will my bank offer me terms favourable to investing in this particular company/industry.
One of the essential success factors in your franchise purchase is ensuring you get the right business loan. Investing in a franchise requires a strategic approach similar to starting any business, including the willingness to assess different options for financing your purchase.
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