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Franchise Financing Canada – The Process and Approvals

Guest post by: Stan Prokop

Article Overview: Information for Canadian franchisees on how to get business financing approved for franchise loans in Canada and what programs and strategies should be considered for franchise financing success

Franchise Financing Canada – The Process and Approvals

Franchise Financing - Prospective franchisees in Canada want to know what is involved in obtaining the proper financing for their business. Many new franchisees are not aware of how franchises are financed and whats involved, so let's share some critical information in this exciting and growing industry in Canada. Statistics show that franchises in Canada are in fact a huge part of the Canadian economy, and business and consumer franchises are involved in virtually every industry in Canada.

As a prospective franchisee you are either looking to purchase a turn key new opportunity from a franchisor or master franchisor, or you may perhaps be entertaining the purchase of an existing franchise that is already established . It goes without saying that you should carefully examine in that instance why the current franchisee is selling. More often than not it is because the current franchisee wishes to move on to another business or career, but you should examine why he is leaving for all the obvious reasons.

There are some innovative ways to finance your franchise in Canada. So how are franchises actually financed? The majority of them are done via a government programme called the BIL (also known as CSBFL) programme. This program is subsidized in rate and structure by the federal government and in our opinion is, bar none, the best small business financing program in Canada. It can of course be used for existing and new franchises. The program offers rates and structures that even larger corporations can't achieve - i.e. Longer terms and amortizations, very competitive rates, and limited personal guarantees.

When clients approach us with transactions that are more difficult to structure an often used strategy we employ is the VTB. That stands for vendor take back, and allows the current owner in effect to reduce the total financing cost for the customer considerably. The owner takes a promissory note arrangement from you and these notes are structured for maximum flexibility to both parties. Lets to a quick example to show you the power of the strategy.

Lets say you are purchasing a franchise for 400,00.00 .00. The monthly payments on a 5 year loan for that amount of funding would be approx 7600.00. If the seller was willing to accept a 75,000 note from yourself to repay this portion later your new finance amount is 325,000.00 and your monthly payment are now only 6200.00. It goes without saying it's easier to make a 6.2k / mo payment than a 7.6k/mo payment! In circumstances such as this good negotiating and the good intentions of all parties are required, that's what makes a deal work, when both parties adopt a win win attitude.

Typical franchise loans tend to be in the 100-350k range in our experience. Much larger loans often involve the most well known names in their industry, and in many cases might have some real estate attached to the transaction.

We have found with great success that the 'cobbling together' of a franchise financing is, in the current economic environment, the most successful strategy. That usually involves our previously mentioned BIL franchise loan, perhaps some equipment leasing, and in some cases an unsecured working capital cash flow loan. A total package usually comes with a business Visa and an initial operating line of credit to suit the overall needs of the business.

To properly execute your franchise financing strategy you require a business plan and some carefull planning around what you need to purchase the business, and, as importantly how you will finance future cash flow, inventory, and growth needs.

In summary, franchise financing in Canada is unique and a specialized type of financing. We strongly suggest you seek and utilize a business financing expert in this area in order to help you determine your overall needs and how you will execute on a successful franchise financing. Its step one to being a new successful entrepreneur!

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Article Tags: franchise financing Canada, franchise loan approvals, franchise loan Canada



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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