Franchise Financing In Canada Three Things You Need To Know
If you were aware of some of the most critical factors in determining franchise financing
success in Canada would your chances of entrepreneurial success increase significantly. We thing so, and lets examine what can take you over the top in franchise financing success.1.Is Franchise Financing Different from other forms of Financing in Canada?
2.How are franchises financed?
3.How much do I need to invest personally and how long does the process take?
We categorically assure our clients that franchise financing is a specialized type of financing in Canada. It is clearly a unique and specialized subset of business financing, and many Canadian entrepreneurs realize sometimes too late that they were ill armed in success negotiation of a business financing during the acquisition of their proposed franchise. One of the positive things we can say about franchise financing is simply that the 2010 economic environment for business financing has improved considerable and franchise lending is clearly in that category .
Banks and other institutions have clearly recognized that the environment of downsizing, self employment and the purchase of an exiting successful brand or business all has aligned in the form of a higher level of visibility for franchise loans. When entrepreneurs think of business financing they think in terms of liens of credit, or term loans. Franchise financing is in many ways different because you are either purchasing a new or existing franchise and the components of that purchase vary significantly from that of a regular business financing need.
What are the components of a franchise financing loan and why are they somewhat different? Those components are the franchisee fee, existing or new assets, potential new or existing leaseholds, plus, equally as important, the need for long term working capital to run the business successfully. That is why franchise financing is both different and specialized!
So let's move on to point # 2 - We agree that franchise financing is specialized in Canada. So how does the entrepreneur finance that new or excising franchise? When we meet with clients we don't necessarily feel that an existing franchise is either difficult to financing, or in fact requires a different financing strategy. There are financial advantages and disadvantages to financing both new or existing franchises. Some of the key issues we review with clients when contemplating either a new or existing franchise financing are as follows
How will ' goodwill be handled on the balance sheet if your are buying an existing franchise ?
Why is an existing franchise priced higher often thatn a new one - ( the answer is of course that the business is even more establishd and has verifiable sales and profits and cash flow .
What will future financing need be vis a vis new or existing franchise purchase will significant leaseholds or working capital investments be required .
Again, there is no right or wrong answers just prudent homework and planning .
Franchises in Canada are financed by personal equity, bank loans, occasional franchisor assistance ( generally not available ), utilization of the government small business loan that is particularly suited to franchises, and , finally, working capital term loans and lease financing .
Will anyone of the above finance your entire purchase . The answer is no. Financing success for your business will be determined by your proper and final mix of the above franchise financing alternatives in Canada.
Let's move on to our final point what amount of down payment we will call it 'personal equity 'is required. The answer is that amount will either be mandated by the franchisor or your franchise lender, as well as your own desire and belief to either minimize of maximize your personal investment. When we sit down with clients with strongly focus on a proper mix of all of the above financing mechanism based on the size of the franchise, the asset base ( some businesses are service , and not asset oriented ) and the owner own view of risk and financial reward when it comes to the proper combination of debt and equity financing .
So, in summary, is franchise financing a guaranteed thing in Canada Definitely not? Can you improve your chances immeasurably by understanding how they are financed, what level of investment you need or should make? Definitely. Work with a trusted, credible and experienced advisor in this area to ensure the financing component of the entrepreneur dream is a key aspect of your overall business planning.
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