Successfully getting a franchise loan in Canada still remains a financing challenge for Canadian entrepreneurs who wish to pursue the Canadian dream of owning their own business. While the Federal governments key loan programme, technically called the BIl programme is the main financier, in our opinion, of franchise loans in Canada the program has come under the microscope by a number of people and different associations and bodies.
People who are actually experts in Canadian finance seem to feel strongly that the program has been mis used by the franchise industry. We certainly don’t think so, and feel it’s simply a case of presenting a clean transaction that has both business and financing merit. That is the key to successful franchise financing.
Just to give the reader a sense of the popularity of this program the government figure actually show that overall defaults under the total program involving franchise financings were 26% higher than non franchise transactions, and that the average franchise loan was 43% higher than those businesses seeking financing in a non franchised environment . That clearly evidences at least the popularity of the program.
In the uncertain business global and economic environment, of which certainly Canada Is no exception it is easy to understand how many people from all walks of life and business want to own, and therefore need to finance, a franchise .
With respect to the BIL / CSBFL programme itself (that’s the technical name of the government program) it seems quite obvious that without a government program in place a lot of franchise financing would not get done. When clients seek our advice on how to finance a franchise we point out the basics, which are simply that financing a franchise in Canada has become a challenge, and invariably needs to be a combination of a couple different types of financing to achieve full financing success . We also caution business owners to focus on two things, putting the proper financing in place to buy the business, and, oh yes, ensuring you have the proper working capital and cash flow in place to operate the business successfully in the long term, generating profits and cash flow of course.
There are many downsides to financing a franchise improperly, that’s why we caution clients to choose an experienced, trusted, and credible financing expert in this very niche field.
So let’s focus on some of the things that can go wrong in financing a franchise, and how in some cases you can avoid or manage those pitfalls. In many cases we see clients choosing a franchise too quickly, this might mean they are putting themselves in an industry they don’t know much or anything about, or in some cases the size of the opportunity and financing are just too large for them to handle.
When any business owner decides to finance a business, either at the start, or ongoing, he talks to his advisors about the proper mix of debt and equity – simply speaking how much you borrow and how much you put in. We see many cases of clients who should have entertained a borrowing or loan strategy and instead have sunk in their life savings, only to see those savings either dwindle or disappear. So whats the bottom line, it’s simply that you should assess the proper mix of debt and equity – it’s ok to borrow if it’s for the right reasons. And we can give you one good reason to borrow under the government programme, and that is that you are only obligated to guarantee 25% of the loan if your business fails. That relatively nominal guarantee happens nowhere else in Canadian business financing!
So in summary, should you buy a new or existing franchise? Quite frankly that’s your decision and we will assume you are an informed buyer who has planned. But when it comes to financing that business, let’s recap the key basics again –
– Avail yourself of the loans and programmes that are best suited to franchise financing in Canada
– Work with an expert , that’s preferable on any type of financing
– Ensure you have a proper mix of debt and equity – its ok to borrow if you borrow smart
Many say a franchise gives you a better or more proven chance of success. If you believe that finance your franchise properly and your ability to generate sales and profits and personal wealth should increase greatly.