Canadian Franchising Loans - 3 Issues in Buying A Franchise You Need To Address

Canadian franchising loans. Buying a franchise is one half the battle when it comes to selection, location and price and return on investment - the other half of that equation is of course getting the financing you need to complete a purchase successfully.

We get a lot of questions around the issues involved in franchising finance in Canada - they all can be boiled down often into three key issues of conce
s of the franchisee. Let's address those.

The three issues we are referring to are the amount of cash you need to commit to in personal funds (and where that cash comes from). Secondly, potential franchisees want to know what their financing alte
atives are and what to do if they are turned down by their bank.

And finally, the sources and use of that cash needed to acquire the business requires some attention and comment. Let's dig in.

The majority of potential franchisee entrepreneurs in Canada think of their bank as the first source for financing their business when buying a franchise. While a bank in Canada might choose to provide a direct loan for the purchase of the business this assumes the purchaser has a very strong relationship, credit rating, and personal net worth to cover that type of financing. In fact that is a rare scenario.

The 2 most common methods of franchise finance in Canada are either via a specialized franchise loan firm, or, more commonly used, the Government Small Business Loan, which is perfectly suited to the acquisition of many franchises.

The requirements for this type of financing are a permanent minimum 10% equity injection, as well as demonstrating that the business has sufficient working capital and cash flow to repay debt and start up the operation.

Owners, i.e. the franchisee should be able to provide a financial update on their net worth, assets, etc, and at the same time they should be prepared to ensure they have a reasonably good personal credit rating at the bureau. Having your federal income taxes up to date is, by the way, highly recommended!

Franchisees should also consider any tax implications around collapsing personal investments such as an RRSP when contributing to their equity portion of the transaction.

Oh, and by the way, financing under a specialized loan or the BIL program we talked about can be nicely complimented via some solid equipment financing of miscellaneous hard assets that might be required.

Want to address any questions you have in the area of Canadian franchise loans when you're considering buying a franchise? Speak to a trusted, credible and experienced Canadian business financing advisor for the assistance you need in that entrepreneurial journey.