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Pitfalls And Solutions When You Finance A Franchise With Franchise Financing Companies In Canada

Guest post by: Stan Prokop

Article Overview: Pitfalls And Solutions When You Finance A Franchise With Franchise Financing Companies In Canada .Get a Franchise Finance Loan with A Minimum of Complications

Pitfalls And Solutions When You Finance A Franchise With Franchise Financing Companies In Canada

When you want to finance a franchise in Canada the type of financing companies you work with and how you address your new business acquisition as an entrepreneur is as important we think as the time and research you spent on choosing your new business.

Let's examine how you can make it much easier process from a viewpoint of time, cost, and ultimate success.

Is franchise financing in Canada viewed as an excepted and positive method of acquiring a business. The facts certainly point to that. The Canadian franchise association has hundreds of franchisor members, and most financial institutions that participate in franchise finance advertise aggressively on their support of this type of Canadian business financing.

Once you have made that decision and chosen your franchise type you want to be in a position to spend the minimum amount of time in securing financing for your business, while at the same time doing it right. That's when you need to understand the basics of a complete package that will virtually guarantee you success and full approval for the funding you need.

Are there some pitfalls along the way? There sure can be. Time and time again we meet with clients who either have little or no experience in the business they are getting into, and coupled with that, don't have any financial support or cushion that allows them to properly finance a franchise without full depleting their personal financial resources.

We all read about companies that fail because they have too much debt and are unable to meet loan obligations - that's the pitfall you want to avoid in franchise finance. The reality is, and this is a surprise to many clients... that you dont want to borrow 100% of the funds you need, but at the same time you dont want to cash in your RRSP savings or fully mortgage your house either. The optimal blend of debt and equity in your franchise tends to be 2 or 3: 1. By that we simply mean that for every dollar you put into your new business you should plan to have only 2 or 3 dollars of debt. And quite frankly that applies to most businesses in corporate life.

You absolutely need a business plan for your franchise, as franchise financing companies and banks want to ensure that you have properly thought out how the business will generate sales, and hopefully profits.

The pitfall we see many times in client plans is that their plan is very marketing oriented, and in reality all the lender wants to see is some financial logic that will demonstrate how the franchise loan will be repaid .

Lenders call that debt service, and you want to be able to demonstrate that you will have cash flow coverage that allows you to both run the business and repay your franchise loan.

If you want a one stop solution for the majority of franchises in Canada, from a finance perspective it's a customized loan called the BIL/CSBF program. It's underwritten by the government, has fabulous rates, terms and structures, and provides you in most cases with the majority of financing you need. Reasonable personal credit history is a requisite for this type of financing. Some private independent firms also offer franchise solutions when it comes to financing, including leasing of equipment.

Speak to a trusted, credible and experienced Canadian business financing advisor on what solutions you can effectively and properly implement to achieve financing success.

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Article Tags: companies, finance a franchise, finance loan, financing, franchise finance



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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.
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!


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