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Franchise Financing and Franchise Loans for Canadian Entreprenuers

Guest post by: Stan Prokop

Article Overview: Obtaining financing for your franchise opportunity in Canada-Information on how Canadian entrepreurs obtain franchise financing in Canada . How are franchise loans different from other types of financing .

Franchise Financing and Franchise Loans for Canadian Entreprenuers

Franchise financing in Canada is the final step in the puzzle for entrepreneurs who are hoping to start a successful business buy purchasing a new or existing franchise in Canada. Many clients we meet with tend to address the financing issues around their purchase much too late in the game, and by doing some carefull planning and research they could have significantly increased their chances of financing success.

The beauty of purchasing as franchise, as it relates to financing, is that as a business owner you are able to determine in advance the total amount of financing you will need to complete the purchase and open the doors to your business.

In Canada all small business financing for entrepreneurs is a challenge, and that certainly doesn't eliminate the franchise industry. But the reality is tar franchising is viewed very positively by a number of organizations who like the fact that your business tends to be a proven business model that has a greater chance of financial success based on the infrastructure and marketing assistance of your franchisor.

There are 4 components to franchise financing in Canada, and our experience and advice to entrepreneurs is that that must in effect choose the appropriate mix of financing, as in general no one financing mechanism can suit both the full purchase of the franchise and the ongoing needs of your business.

So what are those four components? They are as follows:

Owner's personal investment

Govt BIL loan

Equipment financing (if needed)

Third party working capital loan

The cornerstone of your financing is always the amount of your personal investment in the business. A couple key points need to be made here. They are as follows:

-The amount of your personal investment may in fact be mandated by your franchisor - they might insist on you having a threshold of net worth and personal liquidity based on their experience as to what makes a franchise unit in their chain successful

-When you put more money in on your own, as opposed to borrowing you limit the general business risk of having too much debt (However..!! We have met with many franchisees who put too much personal equity in the business are tapped out personally when additional financial challenges arise )

-Debt and equity is a balance act - it's a balancing act for a corporation such as General Motors, as well as for your new franchise - we suggest you work with a trusted, experienced and credible advisor in this area to develop the right mix of debt and equity - i.e. how much you borrow, how much you put in.

Boy scouts use the motto 'be prepared 'of course, and you should plan on the financing well in advance of your purpose. Many franchisees we meet with are ' behind the gun ' in closing their transaction because they don't have simple basics such as a business plan, cash flow plan, list of equipment and leaseholds they need, etc . Planning is a good thing; in franchise financing it's a required thing!

Consider your franchise investment carefully, work with a trusted advisor, understand how franchises are financed, and finally, develop the right mix of financing that allows you to complete the acquisition and grow your new business for future sales and profits.

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Article Tags: entreprenuerfranchise opportunity, franchise financing, franchise loans



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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.
Re: Info for would be franchisers... - [quote="Sebastien":2gam0klq][quote="BuzzAroundBooks":2gam0klq]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.[/quote:2gam0klq][/quote:2gam0klq] That is really what I look for in any industry publication. We lead busy lives and when people fill their magazines with fluff, not only does it benefit no one, but it makes us truly appreciate those that don't. Thanks!


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