In business, a discovery that either makes you more competitive, or in our case ‘ successful ‘ is clearly a good thing. Let’s review the most popular method of financing a franchise opportunity and how to go about ensuring you achieve that success.
It’s not secret that the franchise business has survived the economic downturn of 2008 and 2009 quite positively. Thousands of franchisees are springing up in Canada and both banks and other lenders clearly view your decision on buying a franchise as an area they are prepared to support.
The decision to buy a franchise is sometimes easier than how to arrange your financing for the business, because we think in many cases you have been able to match your skill sets and interests to a business you have probably wanted to get into for quite sometime. Financing that opportunity is probably an area that you’re not necessarily comfortable in if you don’t have a finance background.
However, don’t despair, because if you are properly armed with the right strategy and info and advisory support you are in a strong position to complete your financing.
So what exactly is the foremost method of arranging finances when you buy a franchise? It comes as a shock to many that the majority of financing in Canada is done under a government loan program called the BIL/CSBF program. The government? Absolutely.
Consider this. Would you not agree that if you arrange financing for your business under a 5 or 7 year term loan, at rates that many established businesses can’t even get, and, here’s the kicker, you don’t even have to provide a 100% personal guarantee for the financing. Enough said, we think we have made our point.
Unfortunately just knowing about the program doesn’t guarantee financing your opportunity will be successful. You need to understand the parameters of the program, how to prepare a proper submission around your new business, and finally, ensure you meet some general criteria around what will constitute a solid approval.
Naturally the whole opportunity becomes even more serious based on the total cost of the franchise and the personal investment in time and funds you are prepared to make in the business. Generally in our experience you can expect to receive only minimal support or financing advice from the franchisor. In many cases that is simply because there are various legal ramifications around franchisors providing you with estimates or guarantees of profits, and success. But lets be honest also, the franchisors business is selling franchises, not financing your new business opportunity.
The key essentials of the BIL program are a solid business plan that provides a good overview of the franchise opportunity, your background, and most importantly, the numbers. Does it surprise you that the lender focuses on how they will get repaid – it shouldn’t. So your business proposal should be realistic and focus on cash flow, profits, and debt repayment.
In summary, how to pick and buy a franchise is a challenge we’ll leave up to yourself. Financing a franchise is straightforward if your arm yourself with the most popular financing option, have a clear proposal, and ensure you meet very basic criteria such as an investment on your part in funds, as well as standard application paperwork .
Speak to a trusted, credible, and experience Canadian business financing advisor in the franchise area if you need assistance in how to arrange financing for your franchise opportunity.