Loan Approvals In Canada

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

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

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

'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,

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.

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

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

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

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.