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.