Franchise financing in the Canadian business environment
March 16th, 2010 | Author:
Franchise financing in Canada is a very specialized, almost boutique type of financing. When a Canadian business entrepreneur wishes to ‘ take the plunge’ and become his own boss there are a lot of major decisions and investigations to be made. We will of course focus on financing , but clearly anyone considering a franchise needs to fully be informed and investigate issues such as premises leases, royalty rates, rights and obligations under the franchise agreement, due diligence on the business model ( is it successful, will it generate a reasonable profit, ?) etc.
If you as a franchisee are placing any sort of reliance on getting a direct financing assistance from the franchisor then that clearly won’t happen. Franchisors go into business so they can sell you a franchise, get your money, and then build more franchises, continually replicating that model. That’s not necessarily a bad thing of course; as the chain grows the brand awareness grows, giving you a greater chance of being successful, right?
Although it does not directly revolve around your own financing of the franchise we can categorically say you should do a good level of due diligence around how franchises in your franchise network are financed. What level of financing do they need, what amount you are expected to put in as an owner initial investment, etc. One of the best ways you can do that is to speak to other franchisees, either on your own, or those that the franchisor refers you to, and determine their experience in financing their first franchise. We can’t imagine better information and input than that!
Under Canadian and U.S. laws franchisors have had to give you a lot of information about themselves, their business model, and expectations of success, profit, etc. Use that information. If you aren’t ‘ finance savvy ‘ then talk to a trusted financing advisor who has experience in franchise financing in the Canadian marketplace.
When you purchase a franchise you probably have an expectation of financial success. Naturally we all want to own and grow and prosper into a million dollar business, but you need to ensure what is reasonable in financial expectations around profits, sales, working capital needs, etc.
We hear the term leverage, which is simply the amount of debt that a business will handle. You need to understand the debt levels of the financing you are going to undertake. What level of financing does the franchisor recommend, and, even as important, where will you get that financing.
The Canadian franchise financing marketplace is not as robust as its American counterpart. The only sources of financing for Canadian franchising are as follows:
The CSBF program – Government sponsored and subsidized
Government Crown Corp term loans
Your personal investment
Asset Financing such as leasing
A combination of any or all of the above will allow your firm to be successfully financed. Naturally the more you can put in the better, because that is less risk, less debt.
If you are not comfortable in forging forward on these financing initiatives, rely, as we have said, on a trusted expert in this area.
In summary Canadian Franchise Financing is available, it needs to be researched thoroughly Vis a Vis your needs, which type of financing program you will utilize, and, finally, rely on expert trusted advice!
Stan Prokop is founder of 7 Park Avenue Financial – www.7parkavenuefinancial.com
Originating financing for Canadian companies,specializing in working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies of all size . For info and free consultation on Canadian business financing and contact details see : http://www.7parkavenuefinancial.com/franchise_financing.html
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