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Franchise Financing in Canada – A Solution overview

Guest post by: Stan Prokop

Article Overview: The article discusses the importance of assessing financing options for Canadian entrepreneurs who wish to purchase or acquire a franchise .

Franchise Financing in Canada – A Solution overview

Franchise Financing - Canada still continues to grow its franchise business sector. More and more Canadian business owners and new entrepreneurs feel that acquiring a proven business model and concept will help them achieve personal and financial goals.

In some cases a Canadian entrepreneur may feel that he has a valuable business concept and is in fact looking to expand the business model utilizing the franchising concept.

It clearly is important for Canadian business people and entrepreneurs to understand the franchise financing environment , as the financing solution regarding their business is key to overall future success, We therefore recommend that you seek and discuss your financing needs with a trusted , experienced and credible franchise financing advisor . The key benefit of such a relationship is quite simply to allow you to understand your options and ensure the right financing strategy is put in place.

Remember also that you not only require the initial financing to acquire and or build your franchise, but you need ongoing financial support with respect to a business credit line, miscellaneous commercial banking type services, etc.

When we meet and sit down with potential franchisees who seek our assistance in financing us focus on the immediate need, and, as noted above long term needs that will of course guarantee the viability of the business.

In Canada the majority of franchise loans are done under the auspices of the government CSBF program, which provides financing up to $350,000.00 in most cases. This loan needs to be properly structured to ensure it meets the cash flow needs of your new business, with respect to rate, term, and any special structure. In some cases we have structured the term of these loans to be in the ten year range, but quite frankly our initial work with the owner suggests that the loan can usually be paid off in 5 years, sometimes seven years.

Lets take a quick look at a 250,000.00 loan based on current 2010 interest rates as it applies to an initial franchise loan .

Loan amount - $ 250.000.00

Term - 5 Years

Payment - 4809.00

On a 7 year term the monthly payment would be in the 3600.00$ range.

Therefore you can see, as per above , that your business will have 1200.00 more a month in cash flow and working capital if you opt for a longer term . All business people know of course that the sooner you will be able to reduce your franchise debt and build equity will assist you in greater financial success for your franchise.

So what are the key financing options relative to acquiring the business? First of all you need a solid business plan that should be prepared by yourself, or with the assistance of someone who is experienced in preparing such a plan. When customers come to us with financing requests for franchises we clearly explain to them that a business plan is key to acquiring the right financing. One of the things that some people don't understand is that the business plan helps to 'flush out ', so to speak, the numbers. It will show your projected sales and profits and cash flow, out of which we build the financing strategy.

The benefits of utilizing the CSBF loan program for franchises are that it covers, in many cases up to 90% of the assets and leaseholds you need to finance the business. What many business owners don't understand is the requirement to ensure that 'soft costs 'are covered by either the business owner, or some other alternative financing tool such as a business working capital loan. By soft costs we mean items such as the franchise fee, pre payments to landlords for rent, etc. In our experience the owner's initial equity into the business covers a lot of those soft costs.

Our own experience is franchise financing is such that we have found that it is best to 'cobble together 'a total financing solution that is made up of several different financings, all of which allow you to reach your ultimate financial goal. Generally speaking those solutions are the CSBF loan, a working capital term loan, some lease equipment financing, as well as your own owner equity investment.

In summary , business owners should plan properly for a solid financing strategy around their new acquisition - whether that acquisition covers a new franchise, or a purchase of an existing franchise work with a trusted financing advisor who can steer you through the options that best suit your needs and will ensure growth , profit, and success.

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Article Tags: financing solutions, franchise financing Canada, franchise loans



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: Google's April 2012 Update - As far as I understand, Google's main search mission is to deliver The Best Solution Possible, when you type in a query. This means that they kind of _cant_ teach people how to "game the system" and rank themselves. The way I see it, by the time Google's done evolving their algorithm, the only way to get to the top is going to be "Be A Fantastic Solution Provider... across the board... for your niche/keyword."
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]


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