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Secrets For Success When Financing a franchise In Canada – What Franchise Lenders Won’t Tell You
| Guest post by: Stan Prokop |
Article Overview: How to be success in your franchise financing ;Information for Canadian entrepreneurs on how to successfully work with franchise lenders .Who can help and top tips for dealing with Franchise lenders to assure your approval.
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Secrets For Success When Financing a franchise In Canada – What Franchise Lenders Won’t Tell You
The dream is becoming a reality . You have selected
a franchise in the Canadian marketplace. That franchise is either an existing
unit, or a resale from a currently successful (hopefully!) franchisee.
When you are contemplating the purchase of a business the cost and financing of that business becomes a potential major obstacle . Let's examine how financing a franchise works and is done in Canada .Who are the franchise lenders and what do you need to do to get your business financing past the goal line .
We recently read an article entitled 'How to Buy a Franchise With No Money Down '. Lets be clear on that point, that franchise financing is not available on the 100% OPM plan! OPM of course stands for other peoples money, and you should fully expect to make an equity investment or contribution into the business . That is driven from the fact that in business no lender will take all the risk and allow yourself to take none, which seems fair to us!
In your personal finances hopefully you are living within your means, as the expression goes. When it comes to business , and financing a franchise you should have a general sense of the overall cost of the franchise acquisition and whether that number makes sense to you from a personal net worth and owner equity contribution . Bottom line; don’t expect to buy a 700k franchise with a 10k owner investment - that wont work.
So what is the magic number then? Fortunately, or unfortunately, that magic number of your equity contribution seems to have increased over the last several years. We advise clients realistically that they should be prepared to put in anywhere from 25-50% of the purchase of the business.
The bottom line is that a solid equity contribution from yourself equals less debt on your opening balance sheet, and that's a good thing.
We spend a lot of time with clients constructing the cash flow portion of the business plan re their franchise acquisition. That is because your revenues and expense must be accurately reflected, and out of those calculations flows your ability to service debt, i.e. make your loan payment!
By far the most tried and tested method for financing a franchise in Canada is a program that is underwritten by our good friends in Ottawa. That’s the government by the way. A program that is technically referred to as the BIL/CSBF program, (aka ' Small Business Loan ‘) is the most popular vehicle for financing a franchise.
Clients are always asking what qualifications are required for the program. We can broadly summarize them as follows - a solid well prepared business plan, some industry experience ( we don't recommend that computer programmers buy a restaurant!) , a decent personal credit history, and a , relatively speaking good personal net worth, i.e. home owner , etc.
One mistake many potential franchisees make is to think that their franchisor will become a franchise lender. That’s not the case - in case you haven’t figured it out now they are in the business of selling a franchise, not financing your dreams.
Financing is tough, whether you are General Motors or buying your first franchise in the entrepreneurship dream. Speak to a trusted, credible, and experience business financing advisor who can assist you in your franchise finance strategy for success.
Related ArticlesWhen you are contemplating the purchase of a business the cost and financing of that business becomes a potential major obstacle . Let's examine how financing a franchise works and is done in Canada .Who are the franchise lenders and what do you need to do to get your business financing past the goal line .
We recently read an article entitled 'How to Buy a Franchise With No Money Down '. Lets be clear on that point, that franchise financing is not available on the 100% OPM plan! OPM of course stands for other peoples money, and you should fully expect to make an equity investment or contribution into the business . That is driven from the fact that in business no lender will take all the risk and allow yourself to take none, which seems fair to us!
In your personal finances hopefully you are living within your means, as the expression goes. When it comes to business , and financing a franchise you should have a general sense of the overall cost of the franchise acquisition and whether that number makes sense to you from a personal net worth and owner equity contribution . Bottom line; don’t expect to buy a 700k franchise with a 10k owner investment - that wont work.
So what is the magic number then? Fortunately, or unfortunately, that magic number of your equity contribution seems to have increased over the last several years. We advise clients realistically that they should be prepared to put in anywhere from 25-50% of the purchase of the business.
The bottom line is that a solid equity contribution from yourself equals less debt on your opening balance sheet, and that's a good thing.
We spend a lot of time with clients constructing the cash flow portion of the business plan re their franchise acquisition. That is because your revenues and expense must be accurately reflected, and out of those calculations flows your ability to service debt, i.e. make your loan payment!
By far the most tried and tested method for financing a franchise in Canada is a program that is underwritten by our good friends in Ottawa. That’s the government by the way. A program that is technically referred to as the BIL/CSBF program, (aka ' Small Business Loan ‘) is the most popular vehicle for financing a franchise.
Clients are always asking what qualifications are required for the program. We can broadly summarize them as follows - a solid well prepared business plan, some industry experience ( we don't recommend that computer programmers buy a restaurant!) , a decent personal credit history, and a , relatively speaking good personal net worth, i.e. home owner , etc.
One mistake many potential franchisees make is to think that their franchisor will become a franchise lender. That’s not the case - in case you haven’t figured it out now they are in the business of selling a franchise, not financing your dreams.
Financing is tough, whether you are General Motors or buying your first franchise in the entrepreneurship dream. Speak to a trusted, credible, and experience business financing advisor who can assist you in your franchise finance strategy for success.
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New Franchisee? How Franchising Lenders work in Canadian franchise finance
How Much Will A Business Franchise Loan Cost When Financing A Franchise In Canada ?
How to Protect your franchise investment with smart financing options when you buy a franchise
Financing A franchise? - Here's How Franchise Finance Works in Canada
Challenges in Canadian Franchise Financing in 2010
How to Finance Your Franchise Business Opportunity
Important Lessons On Financing A Franchise In Canada - Franchise Business Loan Success
Franchise Business Financing - Canadian solutions
Finding the Money for a Franchise
Franchise Financing - Canadian approvals!
Need Some Help ? How to Buy And Finance A Franchise - Canadian Franchising Funding & Lending For The Loan You Need
Canadian Franchisee Loans & Business Funding – 4 Secrets To Financing A Franchise
Franchise Funding and Financing Options for Franchisees In Canada
Canadian Franchise Financing – Made in Canada Solutions!
Pitfalls And Solutions When You Finance A Franchise With Franchise Financing Companies In Canada
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About the Author: Stan Prokop RSS for Stan's articles - Visit Stan's website Stan Prokop is the founder of 7 Park Avenue Financial . The firm specializes in business financing for Canadian companies in the areas of working capital , asset based lending, SR & ED tax credit financing, equipment financing, franchise financing and banking .
Click here to visit Stan's website   Film Tax Credits Canada Creative Finance That Is Real And Works What Mom Didnt Teach You About Working Capital Business Financing The 3 Commandments Of The FMV Fair Market Value Operating Lease Myth VS Reality In Canadian Finance Leases Is Asset Based Lending a Viable Option For Canadian Firms Business Equipment Leasing And Financing In Canada When And With Whom To Lease |
Related Forum Posts
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: Franchising Brokers vs Franchising Consultants
- Franchise consultants are free and work with you without any obligation. they do not work for any one franchise but do get a percentage of the franchise fee when a franchisee that was registered with the franchise came from the consultant and the franchisee signs. They will try to match up your interests and skills to franchise businesses that are right for you. They can explain franchise guidelines and help you in any way they can.
Franchise brokers usually get paid by the client and/ or franchise (generally get some type of commission). Additionally, they can get points or referral fee off the deal if they refer you to a lending resource too after they sell you on a franchise. Typcally they will try to sell a prospective franchisee on a larger deal so they get a larger commission.
What is the Best Franchise?
- As a Franchise Consultant I get asked this question on a daily basis. I work with clients to help them find the right franchise and through those conversations they almost always as me: "What is the Best Franchise?".
There is no single answer for this question as the answer truly depends on the criteria you set as a perspective franchise owner. Meaning, maybe you want a retail location with 5 employees or a home based franchise with zero employees. Either way, the word "best" becomes relative to what is important to you.
I realized quite some time ago that I could never "sell" a franchise to anyone. The only way someone will buy a franchise is if it makes sense for them & their family. Performing the proper due diligence is key to finding the best franchise for you.
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!
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