Franchise Finance in Canada calls for both you as the owner, as well a lender, to, on a combined basis, complete the financing you need for a franchise acquisition. In Canada you could of course be acquiring a new turn key franchise from a U.S. or Canadian franchisor, or in many cases also considering the purchase of an existing franchise.
Several key questions are always table by our clients – inevitably they are:
-How much do I have to put into the business as my own investment?
-Where do the other funds come from?
And, oh yes, how long does the process take!
We always encourage clients to start thinking of financing very early in the process. A great place to start is often, guess who? Your franchisor! That is simply because if they have a multi unit system already in place they usually have a strong indication of how these franchises were financed. Information you obtain from the franchisor or other existing franchisees is invaluable , as the franchise financing journey is a puzzle to many .We also are quick to add that you should never expect financing assistance from a franchisor in the form of loans, etc – The franchisor grows their business from selling you franchises, not loaning you money .
In the U.S. the majority of franchises are financed via the SBA, which stands for Small Business Administration . This is a government sponsored / funded loan, and Canada has a similar program that is commonly known by several different names – they are SBL, CSBFL, and BIL. All of these are acronyms for the same program.
You should most certainly incorporate your business to both gain access to business credit as well as limit personal liability. Personal liability under the Canadian version of the program is limited to only 25% - that’s a great deal for the business owner, as it of course limits your risk.
Most franchises in Canada are financed via this program. Sounds good so far right. We simply point out to clients that achieving success in this financing program is simply a case of:
- ensuring you understand the basics of the program – i.e. what it does not do
- complying with the information required by the program
When planning your franchise financing focus on what amount you can contribute personally to the business, and also understanding the components of financing you need. What are those components? They are:
- Soft costs ( example – franchisee fees, pre paid rent, etc )
- Leaseholds ( if required )
- Working capital
We can’t over emphasize the need to work with an experienced and credible business financing advisor who preferably has a track record of franchise financing success. A thorough business plan, the right advice, and understanding you’re financing needs – all are critical elements to franchise financing success!