The decision to both get a franchise opportunity and then finance a franchise purchase are of course intertwined. Is picking the right franchise more important than financing the new business venture? – we’re not sure – probably equally as important – but let’s look at some solid tips and info on franchise financing in Canada, how it works, and how that choice or pick you just made can be translated into a successful entrepreneurial career.
There is a whole industry known as ‘ franchise consultants ‘ that have the skills and ability to help you assess which type of business best suits yourself. If you talk to these people it always comes down to matching your basic personality to your business strengths and interests. Your ability to match those against a solid business opportunity in the franchise industry will ultimately be your success.
We’re the first ones to agree that when you pick a franchise that matches your skills and overall financial capacity your chances of profit and success greatly improve.
So, you have made you finance decision, now how do you get and finance a franchise purchase. In Canada there is one major program our clients use to qualify for franchise financing – it’s a loan program called the CSBF / BIL program, which is the way in which the majority of franchises are financed in Canada. Utilizing this program properly will guide you ultimately to a well financed business that should allow you to meet your personal and business goals.
Your ability to get a franchise purchase closed successfully requires you meet the requirements of your franchisor, i.e. your new business partner so to speak, as well as the lender. You need to understand your initial costs, which are often a combination of soft costs and hard costs. In our experience you will have greater challenge financing the soft costs; they include the franchise fee, and other misc items that are not tangible assets.
The BIL/CSBF program we mentioned covers assets such as fixtures, equipment and also leaseholds. Your ability to finance leaseholds under a franchise loan is very important, as these items are typically not able to be financed under conventional means.
Money. Yours and the lenders. By that we are referring to your ability to put a reasonable down payment, or what the lender calls ‘ equity ‘ into your transaction. And, you’re right. We already know your next questions, because it’s been asked a thousand times: ‘ How much do I have to put into the business to get and finance a franchise purchase properly ‘. Answer: It depends, but a typical franchise investment should be in the 30 -40% per cent range to allow you to have the right combination of both debt ( i.e. borrowed funds) and equity – which is your cushion that allows you to maintain proper leverage around how much debt the business can manage.
One mistake many new franchisees make is that they finance the business from an opening purchase perspective, and aren’t focusing on ongoing working capital needs, which is in our opinion just as important.
In summary, use you own skills or that of a consultant to match your strengths and experience and personality to a franchise that will work for your from a personal and financial goal perspective. Speak to an experienced, credible and successful Canadian business financing advisor on how to best structure the finances around your purchase. Utilize the BIL/CSBF program to the maximum that you can, as it provides solid terms, minimal guarantees, and great rates and flexibility