Franchise Financing In Canada A Solution Overview

Franchise Financing Canada still continues to grow its franchise business sector. More and more Canadian business owners and new entrepreneurs feel that acquiring a proven business model and concept will help them achieve personal and financial goals.

In some cases a Canadian entrepreneur may feel that he has a valuable business concept and is in fact looking to expand the business model utilizing the franchising concept.

It clearly is important for Canadian business people and entrepreneurs to understand the franchise financing environment , as the financing solution regarding their business is key to overall future success, We therefore recommend that you seek and discuss your financing needs with a trusted , experienced and credible franchise financing advisor . The key benefit of such a relationship is quite simply to allow you to understand your options and ensure the right financing strategy is put in place.

Remember also that you not only require the initial financing to acquire and or build your franchise, but you need ongoing financial support with respect to a business credit line, miscellaneous commercial banking type services, etc.

When we meet and sit down with potential franchisees who seek our assistance in financing us focus on the immediate need, and, as noted above long term needs that will of course guarantee the viability of the business.

In Canada the majority of franchise loans are done under the auspices of the government CSBF program, which provides financing up to $350,000.00 in most cases. This loan needs to be properly structured to ensure it meets the cash flow needs of your new business, with respect to rate, term, and any special structure. In some cases we have structured the term of these loans to be in the ten year range, but quite frankly our initial work with the owner suggests that the loan can usually be paid off in 5 years, sometimes seven years.

Lets take a quick look at a 250,000.00 loan based on current 2010 interest rates as it applies to an initial franchise loan .

Loan amount - $ 250.000.00
Term 5 Years
Payment - 4809.00

On a 7 year term the monthly payment would be in the 3600.00$ range.

Therefore you can see, as per above , that your business will have 1200.00 more a month in cash flow and working capital if you opt for a longer term . All business people know of course that the sooner you will be able to reduce your franchise debt and build equity will assist you in greater financial success for your franchise.

So what are the key financing options relative to acquiring the business? First of all you need a solid business plan that should be prepared by yourself, or with the assistance of someone who is experienced in preparing such a plan. When customers come to us with financing requests for franchises we clearly explain to them that a business plan is key to acquiring the right financing. One of the things that some people don't understand is that the business plan helps to 'flush out ', so to speak, the numbers. It will show your projected sales and profits and cash flow, out of which we build the financing strategy.

The benefits of utilizing the CSBF loan program for franchises are that it covers, in many cases up to 90% of the assets and leaseholds you need to finance the business. What many business owners don't understand is the requirement to ensure that 'soft costs 'are covered by either the business owner, or some other alternative financing tool such as a business working capital loan. By soft costs we mean items such as the franchise fee, pre payments to landlords for rent, etc. In our experience the owner's initial equity into the business covers a lot of those soft costs.

Our own experience is franchise financing is such that we have found that it is best to 'cobble together 'a total financing solution that is made up of several different financings, all of which allow you to reach your ultimate financial goal. Generally speaking those solutions are the CSBF loan, a working capital term loan, some lease equipment financing, as well as your own owner equity investment.

In summary , business owners should plan properly for a solid financing strategy around their new acquisition whether that acquisition covers a new franchise, or a purchase of an existing franchise work with a trusted financing advisor who can steer you through the options that best suit your needs and will ensure growth , profit, and success.