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Romancing The Loan – Franchise Funding Options in Canada - Franchisee Financing

Guest post by: Stan Prokop

Article Overview: Information on Canadian franchise funding options . How franchisee loan financing works in Canada .

Romancing The Loan – Franchise Funding Options in Canada - Franchisee Financing

Romancing the Loan. Sounds a bit exotic, does it not? But after the euphoria and celebration of making a decision to purchase a franchise is over, what next? We can tell you. You start worrying about franchise funding options and how a franchising financing loan will happen.

Don't despair though... we're going to cover off some real world and common sense solutions to franchise finance in Canada.

So where do you turn to after you realize you need assistance in financing your new business? While the logical decision is to think of ' the bank ' there are some key things you need to know.

In our experience getting a direct loan from a Canadian chartered bank to finance your franchise is generally unlikely. But, if the truth were to be told, (and we're telling it to you here) there is a way to get a Canadian chartered bank ' on side ' with what you want to achieve. But you need a guys help, and that guy is Bill. Bill who? We're actually referring to BIL, (that's one L folks), which is a specialized government loan program that the banks use to fund most franchises in Canada.

So the simple explanation for our purposes is simply that while the folks at Industry Canada in Ottawa guarantee and organize the program parameters, they in fact charter the banks to administer the program on a daily basis. And the beneficiary that program is you, the new franchisee!

Are there some key factors that will allow you to immediately determine if you can successfully access this program? There sure are. One is of course you r ability to demonstrate you have a clean personal credit history. This is done by simply checking your credit bureau report and being able to produce your tax returns if and when required. (The government for whatever reason likes to know you are paying and filing taxes!) If they are going to give you a loan. Makes sense though.

Clients are always asking if the type of business they purchase when looking for franchise funding options makes a difference. In our opinion, generally no, it does not. With a couple comments though, in that of course a recognized brand is better than an unrecognized brand (think McDonalds as opposed to Joes Burger Joint). And in our experience a service non asset type of business is a bit more challenging to finance that a bricks and mortars franchise requiring financing for equipment, leasehold improvements, etc.

When you consider a franchising loan for the purposes of financing your business remember that any business in Canada is financed in two parts, one part debt, and other part owner equity. So be prepared to put a ' reasonable ' amount of funds down as your personal commitment to the business.

What's that? You have a question. We know your questions and also we've got your answer. An immediate client question almost all the time is ' so how much do we have to put into the business '. The answer is a bit general but anywhere from 10- 40% might be expected, it really varies, and there are some creative ways in which your owner equity or deposit can be validated.

Two considerations you should always make when looking at a personal life commitment such as purchasing as business is how much you should risk, and how you will access personal funds.

The great news about risk is that our aforementioned government BIL loan only requires a nominal 25% guarantee from you the owner. That low of a guarantee is generally unheard of in other forms of Canadian business financing. Also, as a second point, we don't necessarily recommend you collapse secured savings such as RRSP's given the tax hit you will take with that strategy.

Other options in franchise funding in Canada involve specialized equipment financing and working capital loans, and even the ability access highly specialized franchise finance firms that only do this type of financing, but not on our govt program that we have highlighted.

Bottom line? You do have franchise funding options in sourcing capital for your entrepreneurial dream. Loan financing is available in a number of creative ways. Speak to a trusted, credible and experienced Canadian business financing advisor - get on the right track today re: romancing the loan!

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Article Tags: financing, franchise funding options, loan



Related Forum Posts
Protecting IP - Dear BigJim 22 Sure as long as it is in the Franchise agreement... ie wht you are offering as Francisor and what their obligations are as Franchisee It is all in the agreement........ take care Ian
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!
Money I made while in School - While in university I did have a Student Loan (still paying that bugger off) and had a part-time job as a Call Center agent (inbound). *Canada* I also designed websites (outsourced all the work). I just worked on getting new customers, managed the projects to completion and helped create Marketing Plans for my clients (Online and Offline). *Canada* When I was studying the in the States I also made some money as a Part-time Flight instructor. *USA*
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re: restaurant start-up - I'm not sure about government grants for restaurants, but my recommendation would be to approach a lender that offers loans under the Canadian Small Business Financing Loan program where the government will guarantee 85% of the loan. You can borrow up to $250,000 to finance equipment and renovations under this program. Restaurants are very risky business, however some of the Chartered Banks will look at restaurants if there is enough of an initial equity investment and you have a solid business plan (experienced management team, good concept and strategic location).


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