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What’s The Cost And Return on Franchise Financing In Canada.? Franchising Loans & ROI Explained

Guest post by: Stan Prokop

Article Overview: Information on franchise financing in Canada. How to factor the cost and return on investment of franchising finance loans into your business acquisition .

What’s The Cost And Return on Franchise Financing In Canada.? Franchising Loans & ROI Explained

When we talk to clients about their concerns of getting franchise financing in Canada they also want to focus on whether the cost to finance that franchise is in effect a good ' return on investment ', in relation to both their own personal investment in the business as well as ongoing returns on that equity based on the ongoing profits of the business and the risk involved in this type of business, i.e. franchising!



The amount of capital you need to raise relative to your franchise loan varies in Canada. Factors that are critical here are the amount of capital that in some cases your franchisor might insist you put into the business. Another key factor is of course the amount of funding you are able to raise based upon your own personal financial situation, one factor of which is your personal credit rating. Clearly the majority of franchises in Canada are regarded as ' small business' so it makes sense that the banks and other firms that participate in franchise financing are focusing on you personally as well as your overall business prospects.



Canadian chartered banks, contrary to popular opinion, do participate in franchise financing in Canada. In fact in our opinion you could call them the major lender to the industry. But what many clients don’t understand when looking for franchise financing in Canada is that the bank lending in the franchising industry is done under the auspices of the Government Small Busines Loan, which is perfect suited to the type of financing you probably need.



So how much do franchises cost. We can safely say that they range in price for very nominal amounts such as 10k or so for a small service based franchise to millions of dollars for such large brand names... think ' golden arches' as an example .



Cost factors of your franchise vary with respect to how well your franchisor is doing in Canada, or perhaps it’s often the case of a franchisor in the U.S. who wishes to expand or introduce their presence in Canada.





We mentioned the business loan']);"> government small business loan as a prime source of financing for the cost of your franchising proposal. This loan actually maxis out at $ 350,000.00 but in our experience that amount finances a huge amount of the franchise opportunities in Canada. They are great loans because they offer sensible maturities of 5-7 years, solid interest rates and nominal fees attached to the overall financing. The initial franchise fee itself is not financeable under the program, so typically our clients fund that portion themselves, which of course counts as their overall equity,





It's important to start sourcing your financing for your new franchise early on in the process. The bottom line, it’s never too late to start looking at your financing options available, including our aforementioned SBL loan.



So where does the capital come from relative to your own investment in the business.



Typically we see these funds coming from a clients own personal savings. That might also come from a severance situation based on the clients exit from ' corporate life ‘. In some cases you may choose to collapse savings, registered, or otherwise.



We encourage customers to understand the concept of financial leverage when it comes to R O I, or return on investment. Measure risk against reward; ensure you can withdraw a reasonable amount as a salary from the business, based on your financial projections.



And that ROI! Compute and analyze it just as you would any investment, such as a stock. Let’s say something costs 100% and you earn a 6% dividend. That’s generally a reasonable amount. So if you sell that investment 12 months latter your ROI is 6%. Think of that stock as being your business and the dividend being your business profits. Measure risk and reward and factor in the time and commitment you need to make into the business.



Franchising financing in Canada can be as difficult or easy as you make it. Speak to a trusted, credible and experienced Canadian business financing advisor who is expert in financing the cost of your franchising. And here's to your great, hopefully, Return on Investment!

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Article Tags: cost, finance, franchise financing Canada, franchising



Related Forum Posts
New Small Business Topic - Hello everyone, I'm on the lookout for new topics to add to my site. We just launched a Franchising section and are planning Human Resources section. Do you have any thoughts for a new section? Here's a list of what we currently have: Angel Investors Branding Bank Loans Business Coaching Business Plan Franchises (New) Insurance Legal Marketing Public Relations Sales Small Biz Loans Venture Capital
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.
grants for restaurants - Well friend I don’t have any idea about government grants for restaurants, but I will recommend that you may try on some banks who offer loans for small business where the government will have some guarantee. Beside that Restaurants business is very risky so some of banks who gave some Financing Loans they will look at on it if there is enough solid business plans.
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!
No fee biz banking - I miss Bizsmart - it was a great no fee banking option for businesses but I guess the company wasn't making much returns and had to shut down. Are there any other no fee or Low Cost Business banking options still available in Canada?


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