Wouldn’t it be great to know that after you made one of the largest decisions in your business life – (buying a franchise business) that you had some solid options and tips around acquiring the business?
Let examine the current state ( we always work in the real world ) of franchise finance in Canada – who are the lenders in franchising and what funding and lending options might work best for you .
Many clients that approach us seem automatically skeptical that franchise finance can be easily achieved in the current Canadian business environment. No doubt they can be forgiven as its been a couple tough years with respect to the financial implosion (2008-2009), recession, etc. So boy do their eyes light up when we assure them that franchise finance financing funding is still available, and the lending criteria and solutions are not as demanding as they might think.
On the other hand though, what part of business is not a ‘ cake walk ‘ .Almost none, right. Therefore your ability to be prepared is critical.
We can generally put the idea of being prepared into two categories – having a strong proposal, and ensuring also that you are prepared to keep up your half of the bargain with your funding partner. Whats that part of the bargain? It’s your equity investment of down payment into the business, the balance coming from your franchise finance loan funding.
Think about it… in many ways it is probably actually more easy to secure business franchise funding than any other normal start up since you have the benefit of a ‘ brand ‘ and ‘ reputation’ backing you .. I.e. the Franchisor.
We encourage all clients to start assessing their financing options way in advance of their franchise final decision. While you may think that you have to tap into major savings or home equity, or collapse RRSP’s, the reality is that you need to come up with anywhere from 30-40% , generally speaking , of your desired loan amount.
Unfortunately, and we run into this almost all the time, many franchisees don’t have a sense of how the franchise funding lenders assess their personal credit history. It’s more simply than you think. The entire personal credit history of everyone in Canada comes down to a numerical score at the credit bureau. The magic number you need is 650 (or more!). You can easily check your score yourself.
Next steps generally revolve around assessing your financing options. For some of the larger franchise chains one or two well known independent finance companies can handle all your franchising needs from a lending / loan viewpoint. But, here’s the kicker, the majority of franchises in Canada are funded by the Government BIL program .It is absolutely the best deal in Canadian business, flexible rates, terms and structures, low personal guarantees, ability to prepay without penalty… bottom line it couldnt get any better .
Naturally you want to expedite your transaction. That is done by ensuring you have a crisp business plan and financial forecast in place – highlighting your business experiences, profit and cash flow potential, and info on the success of your franchisor as your new partner in Canadian business. You simply want to focus on one thing, showing your ability to repay the franchise loan.
Supplemental financing can also be achieved quite creatively if you have the right assistance – that might come in the form of a merchant advance loan against future sales, equipment leasing, or a straight unsecured working capital term loan.
So the good news is you have some great options in franchise finance and financing your new business. It’s up to you to assess those options, be prepared to present your plan. Want some great assistance? Consider working with a trusted credible and experienced Canadian business financing advisor in franchise finance funding.