YOU’RE LOOKING FOR FRANCHISE FINANCE ASSISTANCE!
FRANCHISE FINANCING OPTIONS
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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
Franchising loans in Canada are, unfortunately still a bit of a conundrum to many entrepreneurs contemplating franchise costs financing alternatives and ' best practices'. We were watching the news the other night and heard the phrase: ' Sources familiar with the matter ...' and couldn’t help but think many of our franchisees wouldn’t mind talking to those ' informed sources ' on the challenges they face in financing their business purchase. Let's dig in.
WHAT TYPES OF LOANS ARE AVAILABLE FOR FRANCHISES? ARE YOU BUYING A NEW OR EXISTING FRANCHISE?
It's important to understand the types of financing that are required by business owners for purchasing a small business franchise. Predominantly that’s a business loan via a term loan structure, but depending on the type of franchise and industry you have chosen it's important to give thought to working capital issues around receivables and inventory, as well as the ability to finance future equipment and leasehold needs to stay competitive. Term loans fund your purchase typically, while other forms of financing fund your working capital and asset acquisition requirements. Interest rates will vary based on the type of loan funding you need.
THE DOWN PAYMENT / PERSONAL EQUITY COMPONENT
While the franchisee must be in a position to commit some level of personal capital to the business that typically comes only at the initial purchase stage, As your business is established, has credible financials and cash flow history finance alternatives not requiring additional capital become available.
While the amount of capital from your personal investment you'll need will be different for every franchise what makes that amount necessary typically revolves around the size of the franchise, franchise quality and reputation, and financing breakdown.
In some cases there even may be a real estate component with your transaction.
FINANCING A FRANCHISE VARIES BASED ON THE CAPITAL NEEDS
Service franchises always are going to have a lower total financing cost because they are not capital intensive. That's great right? Not necessarily though because service franchises are difficult to finance for the same reasons, there are no tangible significant assets.
SHOULD YOU PAY CASH FOR A FRANCHISE
We deal with numerous clients that have in fact ‘paid cash ' for the entire costs of a turnkey franchising operation. In some cases, even a family member may offer financing. Guess what though? As sales and revenue projections (dreams?!) don't materialize fast enough the business runs out of working capital. So the franchisee finds themselves asset rich and cash poor. Fortunately, there are effective strategies available to refinance the business and often save it.
99% of the time there is no franchisor financing available in Canada - Franchisors sell franchises, they don't finance them - So bank loans and business loans such as the Government Of Canada Small business financing program are utilized to fund franchises, as well as of course specialty lenders. Government loans are widely used in franchise financing and come with an attractive interest rate. Government small business loans come with flexible repayment terms and the majority of the loan is guaranteed by the government of Canada. You should also be prepared to provide a copy of your franchise agreement.
ENSURE YOU HAVE A GOOD BUSINESS PLAN AND CASH FLOW PROJECTIONS
Repayment is a concern, mostly for your lender or lenders! So it's critical to spend the right amount of time and access the right expertise in a proper business plan and cash flow. 7 Park Avenue Financial prepares business plans for our clients that meet and exceed the requirements of banks and other commercial lenders and you'll need that as part of a solid loan package.
The key things you need to address are realistic sales projections, as well as understanding that in the cases of selling on credit sales do not equal cash. Naturally, the amount of sales and profits you need to at a minimum break-even are important... although hopefully, no business owner enters into business with the goal of only breaking even.
You should also be able to demonstrate that you have a good personal credit score/credit report for borrowing. Owner good credit is always important in business borrowing - in some cases, you may be asked to provide your tax returns to verify income, etc. Your franchise fee is usually funded by the purchaser. The application process for small business loans is a very standard process.
CONCLUSION
Franchise funding options and the different options available vary greatly based on a variety of factors. If you're looking for those ' Sources familiar with the matter ' when it comes to franchise business loans in Canada seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in addressing franchise costs financing in a manner that suits your needs. Franchise owners are a key part of the Canadian economy and the franchise purchase embodies the entrepreneurial dream.
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Stan Prokop
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