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Expert Advice – Info On How To Finance A Franchise Business In Canada – Franchisee Loan Financing

Guest post by: Stan Prokop

Article Overview: Information on how to finance a franchise business in Canada . How is a financing loan arranged properly in the Canadian franchising marketplace . Tips and Info .

Expert Advice – Info On How To Finance A Franchise Business In Canada – Franchisee Loan Financing

Just a thought here, but why not do it right the first time? We're talking about how to finance a franchise business and obtain the right financing loan for your new life as a franchisee.

Let's share some tips on how things are done, with a focus on ' getting it right the first time '. We're also hoping that by this time you have a strong sense of what franchise you are looking to purchase and that you are comfortable you can run the business from a financial and operational perspective.

So where does one begin? It's often not where you might think. While there are hundreds of quality franchisors out there it's a bit of mis - information if you think that the franchisors responsibility or talent will help you actually get the business financing you need to start the franchise. Of course they want you to get approved, and often can assist in some manner, but at the end of the day the responsibility to get this financing completed lies with yourself!

Banks are interested in financing your franchise, but in somewhat of a specialized manner which we'll address shortly.

Job one simply is determining the amount of capital you need. Thing you need to consider also is the breakdown of that capital. Why? Simply because different types of financing are more suited and applicable to different types of assets.

Items you typically need to consider are the franchise fee itself, i.e. your gateway to the business! As well as equipment, leaseholds and working capital. Those key categories are a pretty good way of categorizing and summarizing your financing needs. Naturally your premises lease is a separate issue and operating cost.

We often point to clients who ask us how to finance a franchise business that it's as important to consider the ongoing financing needs of the business as it is to focus on getting the original financing in place. You want to be able to get a sense of what your overall financial plan looks like when it comes to sales, costs, and profits - its those profits of course that repay the loans you will enter into !

We can't remember a time when a client has not asked us the proverbial question - ' so how much do I have to put in '... referrring of course to their owner equity of beginning capital in the business. We're never one to sounds like our good lawyer friends, but the reality is that it depends. (That's not always the answer our clients were looking for). However, in broad terms we can say that you can be expected to put up anywhere from 10- 40% based on the nature of your business and the amount of capital you are going to need.

Franchises in Canada are financed by only a handful of means. Let's recap them for you, and then you can hopefully determine which method is best.

We certainly don't recommend paying all cash or collapsing savings to pay for 100% of your franchise. A mixture of debt and equity is always the better way to go. Naturally you don't want too much debt, and at the same time you want to obtain some proper... what the financial folks call ' leverage ' to ensure you get a good long term return on the money you have put in and borrowed.

Franchises in Canada a financing loan that will complete your franchise tends to come from 3 sources - the BIL/CSBF loan that is sponsored by Industry Canada, as well as financing from specialized independent finance firms that focus solely on franchise finance. These firms typically only deal with very established franchisors, so they are not going to be able to suit the majority of Canadian potential franchisees. Specialized finance firms such as lease companies also can provide a key financing component to your finance success.

For the right match of debt financing and the best finance solution for your particular needs consider spending some time with an experienced, credible and trusted Canadian business financing advisor who can assist you in your franchise business goals.

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Article Tags: financing, how to finance a franchise business, loan



Related Forum Posts
Protecting IP - Dear BigJim 22 Sure as long as it is in the Franchise agreement... ie wht you are offering as Francisor and what their obligations are as Franchisee It is all in the agreement........ take care Ian
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: 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).
These maybe the coldest franchises out there: - Here are the worst 15 performing franchises in regards to having the highest Small Business Administration (SBA) loan failure rates. The list is dotted with sub sandwich shops, fitness centers and car shops. WORST FRANCHISE LOAN FAILURES Failure % 1 OBEE'S SOUP SALAD SUBS 55.56% 2 LADY OF AMERICA 41.94% 3 COUNTRY CLUTTER (BED & BREAKFAST) 41.18% 4 COPY CLUB 36.36% 5 ALL TUNE AND LUBE 35.71% 6 PICKERMAN'S 35.71% 7 PHILLY CONNECTION 35.59% 8 ROLY POLY ROLLED SANDWICHES 34.78% 9 COTTMAN TRANSMISSION 34.48% 10 HAIR COLOR EXPRESS 33.33% 11 LEE MYLES AUTOMOTIVE TRANSMISSIONS 33.33% 12 GODFATHER'S PIZZA 33.33% 13 SMOOTHIE FACTORY 33.33% 14 BLIMPIE 31.39% 15 GOLF U.S.A. (RETAIL GOLF EQUIP.) 30.77% Source: Small Business Administration, SBA Loan Performance Within Franchise Code for the Period of FY 2001 - 2005
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*


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