YOU’RE LOOKING FOR FRANCHISE FINANCING ASSISTANCE!
HOW TO SECURE FINANCE TO BUY 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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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
The potential franchisee visualizes franchise financing success in Canada - it's the end of the road in their journey as a new franchisee. But the reality is that attaining that goal in franchising in Canada is dependent on information and experience, often not fully recognized by the borrower. Let’s dig in.
THE CHALLENGE OF FINANCING A FRANCHISE IN CANADA
Franchise opportunities in Canada are diverse, many of them offered by franchisors that are both Canadian and U.S. origin. It's no secret that finance loans for a franchise are somewhat more plentiful in the U.S., with diverse lenders participating in this high-growth economic sector.
In Canada, as we have stated, franchisee loans come in different ' shapes and sizes.' Let's explore the who and the how.
WHAT ARE THE TYPES OF FINANCING FOR A FRANCHISE?
The borrower must also be prepared to spend some time to distinguish between the types of finance package he or she is looking for. That might be :
A turnkey acquisition opportunity
A re-purchase of an existing franchise ( ‘ Refranchising ‘ )
Financing for a multi-unit transaction
Master franchise scenarios
Working Capital
Asset and Leasehold improvement
Both a new franchise and existing franchises can be financed with repayment terms tailored to the size of your loan/loans. On occasion, a real estate component might be part of your franchise purchase. Keep in mind that financing solutions will vary depending on the type of franchise you purchase - some might be entirely service-based and not require much asset financing. As a result, franchise loans vary greatly in amount and structure.
Franchisor financing is typically almost never available, franchisors sell franchises, they don't finance them!
WHAT DOWN PAYMENT/ EQUITY INVESTMENT MUST THE FRANCHISEE MAKE?
The amount invested in the franchisee's business is one of the key determinants of loan ' shape and size.’ In Canada, this can range anywhere from 10- 50%, depending on franchise lender requirements. Franchise loans are typically secured by the assets, tangible or otherwise, of the business. It's fairly rare for franchisee personal assets to be attached to a franchise loan.
PREPARING YOUR APPLICATION
Therefore, the above scenario mandates that franchising business loans need to demonstrate they can be repaid out of cash flow. Here's where a solid business plan, cash flow and opening balance sheet will go a long way to reflect loan approval success. The borrower or his advisors are well recommended to ensure some contingency financial modelling also occurs - if only because Murphy's law is everywhere in all aspects of business!
Franchise owners should also ensure they have a positive credit history and good personal credit score when addressing the franchisor's franchise agreement. Lenders will always look at how you manage your personal finances and how you handle your payments per month in your personal life. Get access to the credit bureau report and ensure you understand the ramifications of good credit.
Future franchise owners should be prepared to cover the franchise fee by themselves as this amount is typically not financeable within franchise business loans. Franchisors do not typically offer financing but may potentially steer you towards options available for funding the purchase.
WHAT IS THE INTEREST RATE ON A FRANCHISE LOAN
Clients often ask what are the ' rates and fees' in the Canadian franchise financing option. These transactions are almost always in the single digits, which also reflects the relatively low current interest rate environment.
Your franchise purchase should also address future cash flow needs in your financing plan.
WHO ARE THE FRANCHISE LENDERS IN CANADA
In Canada, the franchise opportunity is financed by either a specialty lender or a combo of financing derived from a bank or a commercial finance firm. This includes lease companies, merchant advance firms, working capital term loan lenders, and the Canadian SBL program. ( The Canadian version of U.S. ' SBA loans' ) The latter is prevalent and is suited to several franchise opportunities. It is the ultimate small business loan in Canada for startups and franchises.
Interest rates are very competitive under the Canada Small business financing program. Government of Canada loans for small business are perfect for your franchise opportunity, so talk to 7 Park Avenue Financial about how we can help you access the program and allow you to be successful in franchise opportunities in Canada. We can't tell you which franchises to buy but we can assist in the financing!
CONCLUSION
If you're a franchisee that can visualize the end to your acquisition journey but don't necessarily know who to get there, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in sorting out those different ' shapes and sizes' inside the financing puzzle that you need to know.
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Stan Prokop
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