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Buying And Financing A New Franchise In Canada? What Franchising Loan Info Do You Need?

Guest post by: Stan Prokop

Article Overview: Information on financing a new franchise in Canada . Consideration for franchisees who are buying a franchise and looking for the appropriate franchising loan .

Buying And Financing A New Franchise In Canada? What Franchising Loan Info Do You Need?

Financing a new franchise. Simple? Difficult? Impossible ? Our answer would be ' simple ‘... never, not really. Difficult... we don't think so, you be the judge. Impossible? With the right information and assistance, absolutely not.



So what in fact does a Canadian franchisee need to know about funding a franchise business in the Canadian marketplace? A good start are some of the basics - we're going to assume you have a general knowledge of what franchising is , with an emphasis on the pros and cons of purchasing what is hopefully a proven business model in your chosen industry vertical . That vertical might be QSR (Quick Service Restaurants) (boy are there a lot of those!) service oriented businesses, the growing healthcare industry... and on it goes.



In Canada ( and we're assuming south of the border also!) your personal financial situation as well as you related experience play a key role in the overall financial plan you will undertake to successfully complete a business financing .



A great start is to prepare a personal net worth statement; simply speaking it’s a basic form that shows what you have, and what you owe. The difference is known as your personal net worth. Hopefully what you have is more than what you owe; otherwise your chances of financing success are somewhat slim, if not non existent.



A business plan prepared by yourself or an advisor will hopefully show you have thought out your cash flows and profit potential. Everyone wants to be a ' winner ' in franchising, that’s understood, and it seems only common sense that the more successful a franchising brand you attach yourself to will translate into financial success.



Don't forget also the royalty aspect of your planning. Royalty fees when you purchase a franchise typically tend to be in the 6-8% range, and those fees should be carefully factored into your overall profit and cash flow scenario.



The old adage that the 3 most important things in real estate are location, location, and location! If your business is dependent on retail / consumer traffic that’s important.



Does your lease and location factor into your financing? Yes, it does, as it’s critical that your lease have a term that appropriately matches the term of your franchising loan. Simply speaking, don't expect a 7 term loan if your premises lease only has 3 years left and is not renewable in your favor.



The amount that you are required to invest as your portion of the business capitalization varies. It depends on a couple basic factors. Those factors are as follows:



1. The minimum amount that might be required from the lenders perspective



2. The minimum amount that might be required your franchisors perspective. This is an especially important number because it is usually drawn from their experience as to what amount of capital units in their chain require to be successful.

3. A third factor is the amount of risk you personally are willing to take in your new franchise venture. In this case ' capital ' is what we tell clients could be a double edged sword. For instance, you could put up 100% of the funds yourself. In that case you have little debt risk, but have a lower return on investment. Alternatively borrowing without a decent equity position puts you at the mercy of your franchise lender when things go wrong, as they sometimes do. And need we mention that every business, franchise or otherwise needs a working capital cushion.



It may seem the wrong way of looking at it, but as a Canadian prospective franchisee you might well want to take some time to understand why franchisees fail, and what you need to know to buy and successfully finance a new franchise in Canada.



The importance of a trusted, respected and experienced Canadian business financing advisor can't be underestimated. Whether you are buying a new unit in the system, or purchasing a resale from an existing franchisee understand your reward, and risk.

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Article Tags: buying, financing new franchise, franchising loan



Related Forum Posts
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
canada resources - I used to have a connection to a franchise consultant in Canada at "Franchise Officer" in Toronto. I wish I could remember his name ( but I can check my files at the office tomorrow). Anyway, he had a lot of connections to banks in Canada. He may know of them and may be able to offer some feedback. If you are looking for a business loan, Canada has similar business loan programs to that of the USA's Small Business Administration (SBA). I think its SLBS in Cananda, and I probably have the list of it's lenders in my office also. Do you think either can be helpful? If so, I can get back to you with this information tomorrow. Let me know!
Re: Hello EvanCarmichaelers, and Thanks! - "Carmichaelers" ..nice.. Over at the Young Entrepreneurs I'm going to start calling my readers "DSilvelers" - I like the sound of that! Welcome on board theFranchiseMarket. Do you run a Franchise Business or are involved in Franchising in anyway?
Money I made while in School - While in university I did have a Student Loan (still paying that bugger off) and had a part-time job as a Call Center agent (inbound). *Canada* I also designed websites (outsourced all the work). I just worked on getting new customers, managed the projects to completion and helped create Marketing Plans for my clients (Online and Offline). *Canada* When I was studying the in the States I also made some money as a Part-time Flight instructor. *USA*
re: restaurant start-up - I'm not sure about government grants for restaurants, but my recommendation would be to approach a lender that offers loans under the Canadian Small Business Financing Loan program where the government will guarantee 85% of the loan. You can borrow up to $250,000 to finance equipment and renovations under this program. Restaurants are very risky business, however some of the Chartered Banks will look at restaurants if there is enough of an initial equity investment and you have a solid business plan (experienced management team, good concept and strategic location).


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