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Franchise Financing – Canada (‘You’re Approved!)

Guest post by: Stan Prokop

Article Overview: Information for Canadian franchisees on franchise financing success in Canada and the importance of knowing how franchises are financed and what the business owner needs to consider .

Franchise Financing – Canada (‘You’re Approved!)

Franchise Financing - In Canada, those two words. ‘You’re approved ‘is what the new entrepreneur wants to hear after they have picked a franchise opportunity and wish to ensure it is properly and successfully financed.

We tell clients that we certainly wouldn’t call franchise financing in Canada a ‘ tricky ‘ process , but it is clearly a mis understood and specialty sector of Canadian business financing .

The Canadian franchisee wants to know that they have enough funds to successfully acquire the business, and, as importantly, fund the business on an ongoing basis.

Business men or women who want to purchase a franchise quickly learn that financing a franchise in Canada is a combination of their own investment, as well as a third part lender loan or lease from a bank or an independent finance firm .

Many business people actually wonder if the Canadian chartered banks finance franchises. The answer is that they do, but in a focused or limited way. The majority of franchises in Canada are financed by some form of a program known as the CSBF program. Although that financing is negotiated, processed and administered by the banks in Canada in reality your financing is a government guaranteed facility. That’s a good news and bad news scenario in our opinion. The rates and structures and terms of these loans are the good news, many clients are disappointed in the timeframes and paperwork it requires to obtain a final approval and funding.

Since the CSBF program is a program per se it simply means, in our opinion, that you have to temporarily become and expert of that program, and if that’s not the case you should seek out the expertise of a credible, trusted and experienced advisor in this area.

The benefits of the CSBF loan are that you don’t have to 100% collateralize the loan with other personal assets – in fact only a very reasonable portion of the whole loan is actually personally guaranteed by yourself as the owner of the new business, or in some cases the purchaser of an existing franchise .

Because a franchise financing is essentially a ‘ start up ‘ business there are important considerations you have to focus on to properly present a case for financing . Therefore information about the franchisor, yourself, your business plan and projections, and misc other info as required are critical in obtaining a final approval that meets your needs.

To date we have focused on a ‘banking ‘type solution for your total franchise financing. Experience has us telling our clients that a successful franchise financing in Canada invariably becomes a pulling together of a couple types of financing – one is the CSBF program, additionally you as the owner put in some funds, and other funds are available through independent finance firms and leasing companies . This ‘cobbled together ‘approach is in our opinion the most successful form of franchise financing in Canada. Naturally the size and the nature of your business also dictate what amounts of financing have to come from each of our above finance categories.

Business owners often ask us how much they have to put into the business. This of course varies, but more often than not 25- 40% is a general rule of thumb , but again this varies with the size of the opportunity and the overall financing structure that is required t to make your business successful . Having experience in your chosen franchise business from an industry perspective is of course helpful, although in many cases our firm has found that solid business acumen in any business helps to create any successful new business.

An important point of franchise financing in Canada is how you allocated our own personal investment of funds – a mis allocation will result in an improper financing mix and need for additional financing you might not have necessarily needed! That’s important .

In summary, franchise financing in Canada is growing relative to the overall popularity of franchise as a whole and its role in the Canadian economy. Understand your business model, determine the right amount of financing you need to acquire the business, and don’t forget financing needs to be considered on an ongoing basis. If you don’t consider yourself a finance expert get one – the ability to achieve franchise financing success with a solid mix of good structure, terms and rates will create a win win scenario for you new business endeavor .

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Article Tags: franchise financing Canadabusiness owner, franchisees



Related Forum Posts
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: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
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.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.


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