BIL – Franchising POC

How To Qualify For Franchise Financing In Canada A Franchising Finance Business Loan That Makes

Posted on November 7, 2019 by blogger

What do I need to do to get to the goal line? That’s a favorite client question when it comes to franchise financing in Canada. We’re talking about a franchising business loan to finance your new business (or one that exists already which you’re buying).

Information. Solid info that you want on the qualifications and process involved in getting approved for your franchise investment. Let’s dig in.

To say that franchise finance is a ‘ specialty’ area of Canadian business financing is an understatement. There is a fundamental misunderstanding of how this type of finance works, the processes around it, and the risks that you can avoid by doing things properly… with some expert advice along the way.

Is there a systematic way, or method that Canadian franchisees can use to get the financing they need? We think there is. Essentially it is really two very simpe concepts, planning, and knowing the process. Simple as that.

Many new Canadian franchisee ‘ wannabees’ view financing as an obstacle. We can forgive those clients sometimes because in the last few years any type of business financing has been a challenge, whether you’re General Motors or purchasing a new franchise in the restaurant industry!

Many franchisees (mistakenly so) think the franchisor you are working with is either going to provide you with the financing you need, or in some cases at least steer you in the right direction. They might do a bit of the latter, but let’s be honest here; the franchisors job is selling franchises, not financing them. Even various banks and other franchise lenders probably would like to see franchisors being more involved in the franchising finance business, but we simply don’t think that is going to happen.

Education. And guess what, we are not talking about educating you, we’re talking on your need to be able to educate your franchise lender about why you are the perfect franchise financing in Canada candidate.

And who are the franchise lenders in Canada. That’s probably the main thing you wanted to know, isn’t it? There are 4 key franchise lenders in Canada. They are the Canadian chartered banks under a special program called the BIL/CSBF program , one or two very specialized franchise finance lenders ( they only do very large transactions ) , and thirdly some independent finance firms that offer equpment financing tailored specifically for the franchise industry .

But didn’t we say there were 4 lenders? We did. And we’re pretty sure you know that 4th lender already. It’s yourself, because your own equity portion or down payment into your business is viewed of course as a debt or a loan.

So whats the clear process in qualifying for franchise financing in Canada. Is there a clear road map you can follow? We categorically think there is. And here it is.

Identify the total franchise funding you need. Determine what amount of owner equity you are prepared to put into the transaction. Anywhere from 10 – 40% is typically required. Determine which of the 3 other methods of financing will allow you to cobble together a total solution to finance your new business.

Next step – prepare a package that includes a business plan, cash flow, info on yourself and the franchisor, with a focus on success and repayment of your debt. Along the way don’t forget that you need reasonable personal credit history, and boy does some specific industry experience or general business knowledge help in confirming your future ability to be successful for a franchise finance business loan.

Focus on the best financing that matches your needs; we strongly recommend the BIL program which has great rates, terms, structures, and limited personal guarantees.

Going it alone? It’s possible. A better idea? Speak to a trusted, credible an experienced Canada business financing advisor on information and help on franchise financing in Canada. Next step = ‘ You’re approved ‘!

Business Franchise Loan Challenges Here’s How Franchising Loans Really Work In Canada

Posted on October 5, 2019 by blogger

Business franchise loan challenges in Canada? We’re the first to admit that the concept of getting a ‘ tip ‘ in business is not always a good thing but we’re drawing from successful experience in franchising loans that assist clients who are serious about entering this type of business.. and being successful!

There is of course a long journey between the time you decide to purchase a franchise to the time that ribbon opening! Along the way you have been vetted by the franchisor, investigated, probably spent some time in training and orientation, and… Oh yes, we forgot… faced the finance challenge of buying the business!

Many franchisees either struggle or are uninformed about how much equity, aka ‘ down payment ‘ they have to put in the business. We forgive them for this confusion because it’s a three pronged issue –

1. How much capital the owner can comfortable raises or put in

2. How much equity capital is required by the type of financing you ultimately enter into?

3. How much capital in some cases that the franchisor insists on as a prerequisite to entering into their program – typically that amt. is one to listen to carefully as its often based on the franchisors experience as to what it takes to be financially successful, not just ‘ sales and revenue successful ‘!

While Canadian chartered banks have in essence recognized and embraced the franchise industry as a key borrowing segment it is very important to note that almost never to they finance franchises directly – even less so when it’s not an ‘ asset heavy ‘ deal . So what our banks do is to carefully tailor some large national programs around the franchisors willingness to work with them in a worst case scenario – i.e. The financial failure of your business!

If you are fortunate enough to acquire a business that’s a part of a very large and successful respected chain you should be congratulated and might find some financing solace. If that is not the case one of the best possible solutions for your financing decision comes from an acronym. And that acronym? It’s the BIL loan program which hundreds/thousands of franchisees use to facilitate the financing of their franchise if the purchase price is under 350k – which is the program finance cap.

Whether you are borrowing from a specialty franchise lender (yes they do exist) or from a bank or commercial finance firm it’s important that the franchisee demonstrate reasonable personal financial history. That of course means that you can demonstrate that you have run your personal finances in a manner that reflects how you would run your franchise.

Lenders and even the franchisors themselves can easily verify your personal financials via credit bureau reports, statements of personal asset, etc.

Understanding the up front challenges of franchising loans will save you time, money and ultimately guarantee financing success. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your business franchise loan needs.

Business Franchise Loan The Before And After Of Franchising Finance In Canada

Posted on January 17, 2018 by blogger

Business franchise loan challenges. When it comes to financing a franchise in Canada there’s some critical ‘ before and after ‘ issues that need to be address. When they aren’t addressed properly the situations becomes… shall we say ‘ gut wrenching’! We’ll examine some of those key points. Let’s dig in!

Your initial decision to purchase a franchise should always be tempered with the amount of funds that you can personally invest in the business. These day’s those funds come from savings, equity lines of credit, and in some cases corporate severances.

Knowing the amount that you can comfortably commit to the business will play a key role in both the size of franchise you buy, as well as the financing you can arrange in this somewhat specialized field. Frankly, in Canada franchise funding comes from the smallest handful of resources – a specialized franchise finance firm, a bank loan, and some ancillary financing services such as equipment finance, leasehold finance, and merchant advances when it comes to working capital needs.

We reference banks, but by far the amount of financing that the Canadian banks deliver is through a vehicle known as the BIL/CSBF loan program. It’s the government program that over time has become the de facto vehicle to finance many of the franchises in Canada. Challenge arise when you are purchasing a service franchise as the BIL program is tailored more specifically to assets and leaseholds and real estate on some occasions.

Can the size and quality of the franchisor you are working with affect your business franchise financing success? To a certain degree the jury is always out on that one – suffice to say that some franchises are viewed as a bit more risk or somewhat more or less successful than others .

Also, as a point, when a franchising loan is under consideration in Canada it in fact does not make a real difference if your franchisor is Canadian, U.S. based, or in some cases you might simply be working with a Master Franchisee who has purchased the rights to your overall territory.

Your business plan and cash flow document are critical to finance success. In fact while the business plan is needed before you start your franchising process it can become a key valuable document in benchmarking your success down the road as compared to your original aspirations /projections.

Personal finances are a key part of the overall franchise finance process. You will need good reasonable credit history for your borrowing , and you will want to ensure that in your financial due diligence you assess the fact that your business will generate cash flow and profits that will allow you to draw a decent income based upon your needs .

When it comes to the franchising loan you want to ensure that your finance package addresses both the needs of the lender (i.e. repayment of your loan) as well as your ongoing working capital needs. Financial projections we see from clients are often not realistic, which can create some serious ‘ start up ‘ problems when it comes to financing on going operations.

At the end of the day the whole business franchise loan process requires both a ‘ before and after ‘ approach. Careful planning and utilizing guidance from your franchisors experience will get you to the goal line.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with franchising finance needs in the Canadian marketplace.

Franchising Loan What’s The Difference Between Franchise Finance And Other Business Loans

Posted on October 25, 2017 by blogger

It’s a great client question: What in fact is the difference between a franchising loan and a regular business loan when it comes to arranging franchise finance in Canada?

The answer? There are some differences, but you just might be surprised at the similarities when it comes to comparing the two. Let’s explain.

When it comes to the ‘ players ‘ in your finance loan, it’s pretty simple. Contributions are required from you, and your lender / lenders! In Canada those lenders are specialized franchise financing firms, banks, and third party commercial finance companies. While it is extremely difficult in Canada to obtain full financing for your franchise via a Canadian chartered bank the good news is that thousands of franchises are financed via the Government Small Business Loan which can provide funding up to $ $350,000. That’s not chump change! . And when you hear what rates and terms and structures are required you’ll be even more pleasantly surprised.

Clearly franchising fits into the area of the SME sector of Canada, and for that reason a lot of the challenges that the franchisee faces revolve around the same issues faced by any other start up. Yes , we agree that you’re acquiring ( hopefully ) a proven business model but the early stage financing required to get you to a turnkey ‘ in business ‘ stage is still viewed as placing a heavy onus on the entrepreneur to come up with a decent portion of the capital yourself .

Franchising, as well as any other type of business requires two key components for initial capital… a ‘ plan ‘ and ‘management expertise “. And that plan by the way is known as the ‘ business plan ‘ – which is simply your well thought out road map to financial and operational success.

The type of financing that you obtain when you finance a franchise revolves specifically around ‘ use of funds ‘, another common term for any other business financing. In your case that might be real estate, construction, equipment and fixtures, leaseholds, and some opening inventory if you have a product as opposed to a service franchise.

We mentioned the Govt business loan previously as a great conduit to get you approved for your new business. But we point to out clients that that loan program only covers equipment and leaseholds, so items such as the franchisee fee and opening inventory are not financeable. We wish they were… but they’re not!

We have referenced the fact that while Canadian banks provide millions every year for entrepreneurs in the franchise sector via the specialized BIL loan, they in general are reluctant to finance the business outside the Govt program. So discussions around bank financing quickly gravitate to personal collateral, home equity collateralization, etc. It’s simply not the optimal way to go if you want to separate your business life from your personal life.

Another strong similarity in franchise finance when compared to other business financing is the fact that a strong emphasis is placed on your personal financial history. This is typically documented by your credit report and a solid amount of emphasis is placed on this report. In Canada this report is in effect a scoring system and a good score of ‘ 650’ is required.
Simply speaking, the bank or any other commercial lender wants to know you will run your own business in the same manner as you have arranged and run your personal finances, and that of course makes sense – especially if you’re the lender!

So as we have seen many of the concepts and lender views around any business finance loan or proposal pertain to franchise finance, with some nuances / differences. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor for franchise finance assistance.