Canadian franchise financing requires solutions that are not necessarily part of mainstream business financing . As in all types of business financing we urge clients to consider working with an expert who is credible and experienced in the Canadian franchise financing environment .
There are a solid handful of franchise financing alternatives in Canada . Franchising is growing increasingly popular, and the industry as a whole is a key part of Canada’s relatively strong economy after the difficult challenges of 2008-2009.
Franchise financing in Canada consists of the same two elements that exist in any business financing – debt, and equity . Our work with clients has found that it is more beneficial in financing a franchise for your equity portion of your deal to carry some of the major soft costs . In general, and this is news to many new franchisees, soft costs such as franchise fees, pre paid rents, etc cannot be financing .
As we have stated , your financing is completed via two areas – your equity that you put into the business, and what you borrow . You naturally would have a much stronger chance of success if you put up all the funds yourself, as your franchise would not be carrying any debt – but the reality is of course that is not generally possible .
In discussing franchise financing with clients we point out that financing has to consist of two different mind sets – the financing you need to get the business purchased and going, and then, equally as important , the ongoing working capital needs . Many franchises are ‘ cash businesses ‘ ( example – restaurants ) that require little or no investment in receivalble and inventory . Alternatively your franchise might have a non cash business focus on you need carefull planning on the level of financing you need for a/r and inventory, etc .
Franchises in Canada are financed in 5 ways in Canada . It is extremely important you are aware of those five sources – Naturally the 6th source , unmentioned, is yourself, as you are of course required to make some level of personal investment also .
The Golden 5 ! Franchising in Canada is financed by one major international finance firm , as well as the Canadian banks, who have special departments set up for this type of financing . It is incredibly important to ensure you are dealing with the right group at these two institutions , otherwise you will waste significant time and erase some of the credibility around your financing request .
Our firm supplements the above two sources of financing with leasing for various assets, and in some cases unsecured working capital loans . The final component is the franchisor itself, or the franchisee from whom you are buying an existing franchise . While many franchisees who are selling to your will consider offing vendor takeback financing in general this is tenuous – additionally franchisors themselves are in the business of selling you a franchise , not lending you funds !
In summary, franchise financing in Canada is a focused and specialized niche lending . It is accomplished through a combo of traditional and somewhat non traditional sources . Determine what financing you need to acquire the business, as well as ongoing working capital needs . The workds ‘ franchise financing expert ‘ should become a top priority , as an expert will help you cobble together your total financing solution that meets your personal needs .