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Franchise Financing In Canada – Three Things You Need To Know

Guest post by: Stan Prokop

Article Overview: How to get a franchise loan in Canada .Information on how entrepreneurs can achieve financing success for franchise loans and business financing of new and established franchise businesses in Canada.

Franchise Financing In Canada – Three Things You Need To Know

If you were aware of some of the most critical factors in determining franchise financing success in Canada would your chances of entrepreneurial success increase significantly. We thing so, and lets examine what can take you over the top in franchise financing success.

1. Is Franchise Financing Different from other forms of Financing in Canada?

2. How are franchises financed?

3. How much do I need to invest personally and how long does the process take?

We categorically assure our clients that franchise financing is a specialize type of financing in Canada. It is clearly a unique and specialized subset of business financing, and many Canadian entrepreneurs realize sometimes too late that they were ill armed in success negotiation of a business financing during the acquisition of their proposed franchise. One of the positive things we can say about franchise financing is simply that the 2010 economic environment for business financing has improved considerable and franchise lending is clearly in that category . Banks and other institutions have clearly recognized that the environment of downsizing, self employment and the purchase of an exiting successful brand or business all has aligned in the form of a higher level of visibility for franchise loans. When entrepreneurs think of business financing they think in terms of liens of credit, or term loans. Franchise financing is in many ways different because you are either purchasing a new or existing franchise and the components of that purchase vary significantly from that of a regular business financing need.

What are the components of a franchise financing loan and why are they somewhat different? Those components are the franchisee fee, existing or new assets, potential new or existing leaseholds, plus, equally as important, the need for long term working capital to run the business successfully. That is why franchise financing is both different and specialized!

So let’s move on to point # 2 - We agree that franchise financing is specialized in Canada. So how does the entrepreneur finance that new or excising franchise? When we meet with clients we don’t necessarily feel that an existing franchise is either difficult to financing, or in fact requires a different financing strategy. There are financial advantages and disadvantages to financing both new or existing franchises. Some of the key issues we review with clients when contemplating either a new or existing franchise financing are as follows –

How will ‘ goodwill be handled on the balance sheet if your are buying an existing franchise ?

Why is an existing franchise priced higher often thatn a new one - ( the answer is of course that the business is even more establishd and has verifiable sales and profits and cash flow .

What will future financing need be vis a vis new or existing franchise purchase – will significant leaseholds or working capital investments be required .

Again, there is no right or wrong answers – just prudent homework and planning .

Franchsies in Canada are financed by personal equity, bank loans, occasional franchisor assistance ( generally not available ), utilization of the business loan']);"> government small business loan that is particularly suited to franchises, and , finally, working capital term loans and lease financing .

Will anyone of the above finance your entire purchase . The answer is no. Financing success for your business will be determined by your proper and final mix of the above franchise financing alternatives in Canada.

Let’s move on to our final point – what amount of down payment – we will call it ‘personal equity ‘is required. The answer is that amount will either be mandated by the franchisor or your franchise lender, as well as your own desire and belief to either minimize of maximize your personal investment. When we sit down with clients with strongly focus on a proper mix of all of the above financing mechanism based on the size of the franchise, the asset base ( some businesses are service , and not asset oriented ) and the owner own view of risk and financial reward when it comes to the proper combination of debt and equity financing .

So, in summary, is franchise financing a guaranteed thing in Canada – Definitely not? Can you improve your chances immeasurably by understanding how they are financed, what level of investment you need or should make? Definitely. Work with a trusted, credible and experienced advisor in this area to ensure the financing component of the entrepreneur dream is a key aspect of your overall business planning.

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



Related Forum Posts
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]
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.
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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