Franchise Financing –
Loan Approvals In Canada
Franchise financing approval in Canada is a key aspect of
the entrepreneurs challenge to purchase and build a
business. Canadian business people purchase franchises
because they wish to profit and be successful on an
already proven business model. We of course assume
they have picked the right franchise!
What mistakes can be made in franchise financing as
What mistakes can be made in franchise financing as
it relates to the purchase of a new or existing
franchise? Naturally solid planning and careful preparation
of a business plan increases the chance of success.
Whether a business is a franchise business or not the
Whether a business is a franchise business or not the
underpinnings of a successful finance strategy are
important to long term success. Business owners,
bankers, other lenders and financial analysts always look
at the relationship between debt and equity – in simply
language that means how much you yourself are putting
into the business and how much you are borrowing.
If you borrow too much you are considered 'over leveraged.
Therefore in the course of purchasing your franchise
you should be prepared to make a personal investment
in the business also – that's a given – it cannot all be OPM,
which is and an acronym for 'Other Peoples Money '.
So of course when we meet with clients they always ask
So of course when we meet with clients they always ask
'how much do I have to put into the business? The answer
is as follows – many franchisors will actually insist on a
certain amount of money being put down , because based
on their actual experience with their own locations and
other franchisees over time there develops formulas as to
what is an optimal investment by yourself .
Also keep in mind that if you, as an example, are purchasing,
Also keep in mind that if you, as an example, are purchasing,
say, a large unit of a restaurant chain that transaction
might be in the 1 Million dollars range. Let's say you put 25%
down of 250k. Another franchisee might be buying a service
oriented business that does not have and furthermore
does not require fixed assets such as leaseholds, equipment,
etc. If that business cost 100k to purchase a 25% down
payment is of course only 25k, much less than the 250k
other franchisee had to put down in absolute dollars. So
our point is simply that if the purchase price of your
franchise is asset intensive, and has a higher dollar value
you must naturally assume that a large absolute dollar
amount of financing is required. That probably is clearly
the appeal of many service based franchises that do not
require assets.
So how are asset based franchises financing in Canada.
So how are asset based franchises financing in Canada.
There is in our opinion a large amount of dis information
on franchise financing in Canada – therefore new and
prospective franchises are encourage to speak to a trusted
and credible franchise financing expert . That is simply
because you will know your options and strategy much
better. It certainly doesn't hurt, if you can, to speak to
other franchisees in the franchise system that you are
looking at purchasing.
In some respects there is a benefit to purchasing an
existing franchise from a current franchisee in the system
you are looking at. Our observation is that those units
come with a higher price , for the simple reason they
are proven already, they have sales, profits, and cash
flows that you can analyze , with your franchise financing
expert, to determine the overall viability of the business .
We have worked with a number of prospective franchisees
We have worked with a number of prospective franchisees
who actually are comfortable in buying a franchise that
is not doing so well because they strong feel they can
turn it around. So there are in effect buying a business
that is proven, but temporarily distressed in some manner,
usually relating to issues such as poor sales revenues,
etc.
Franchises in Canada are financed predominantly by one
Franchises in Canada are financed predominantly by one
major government program that is in existence – we have
found that by utilizing this program, and complimenting
that financing with a working capital term loan and lease and
equipment financing (if applicable) helps to ensure overall
franchise financing success.
In summary, ultimately you as a business owner have to
In summary, ultimately you as a business owner have to
be comfortable with what you are purchasing – but you
should also take comfort in knowing that franchise
financing is available in Canada, and simply needs to be
tailored to the type of business you are buying, its size
and asset requirements, as well as the utilization of
proven and available financing methods such as the
government CSBF program we referred to.
Investigate your opportunity, plan financing carefully,
execute on that financing and your chances of success
increase immensely.
