Clients are always asking us, who are the franchise finance lenders in Canada. At that point they have made the decision to invest their time and money in a new entrepreneurial business, and have chose to either purchase a new franchise, or, in some cases and existing unit. (There are a number of reasons why current franchisees want to sell their unit to you – but you should carefully explore the reason for the sale for the obvious reasons)
So what are the 4 most important things you need to address, assess, think about, and action in your decision to finance a franchise. We feel they are as follows: They are by no means in order of importance, but at the same time you probably won’t be successful until you are in a position to have satisfactorily addressed all the issues:
1. You should have some experience in the industry, of feel confident that you and the franchisor have the ability to get you up to speed in training if it is a new industry for yourself – ( We caution you that the number of franchise lenders in Canada place a certain amount of focus on management experience ). However, if you can demonstrate good business acumen and previous success that certainly will help the franchise financing process.
2. You must demonstrate that you have a solid business plan – yes this had to be; written out’ so to speak. If you do not have the interest or ability in generating such a document you should seek the services of a trusted, credible and experienced business financing advisor to prepare such a plan. In our opinion the reasonable costs associated with such a plan are in the 750-1000$ range , which is a small portion of your overall investment and if it produces the financing you need, as well as delivering on a reasonable financial action plan that surely is money well spent .
3. Location / Location/ Location! That phrase is of course used a lot in real estate business – if your franchise is one in which a location is important you should clearly seek out a location that will assist you in driving revenue and sales growth for your industry. We caution many clients that their own belief in the value of the franchise and their own skills in taking the business forward cannot always overcome a bad location. So if that’s a key element in the franchise you are considering purchasing then one of the ways in which you can address that issue is usually free – it’s simply speaking to a local real estate agent, preferably one with business, not consumer experience, and getting advice and opinions on the location you are contemplating.
4. Capital – Money! The financing of your franchise in Canada comes from the two key elements of business. These two key elements are the same for your franchise as they are for a mega corporation such as IBM – The two elements are:
The equity portion of your investment is your own personal resources. You should never entertain the thought of obtaining 100% financing for a franchise – while that generally wont fly with any franchise lender, at the same time you would probably be over leveraged and a suitable candidate for business failure .
So how are franchises financing in Canada. Who are the franchise finance lenders?
The best and most popular program is a government loan that is underwritten by the federal government, the technical name for the program is the BIL program, and most Canadian business people know the program as the Small Business Loan. It goes up to $ 500,000 in some cases and is by far the most popular method of obtaining franchise financing, in tandem with you own investment, which can be anywhere from 10-50% per cent of the total amount you require . In recent years the bar has been raised on your personal equity contribution into the business.
In summary, franchise lending in Canada is a somewhat of a unique boutique type of finance. Work on our four fundamentals we have presented – also seek out the services of someone who is a trusted, credible and experience franchise lender who can assist you in your transition to franchise purchase and franchise financing success.