Financing a Franchise Business? What You Need to Know to Obtain Finance for a Franchise
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Can too much expert knowledge in financing a franchise business ever be a bad thing? We certainly do not think so and we'll show you how to obtain finance for a franchise business that you have chosen to purchase.
When talking to clients about franchise finance in Canada we generally talk about the Boy Scout motto. You will recall that their motto is 'BE PREPARED' and that's the total strategy around financing a franchise successful that you must adopt.
Getting the money to purchase your franchise of often the biggest worry of new entrepreneurs such as yourself. People search out franchising opportunities because they are essentially looking for a combination of opportunity and wealth – there is usually only one major obstacle to that road to success, it's the funding for the acquisition of the franchise business.
If we had to summarize in a very simple and basic what you need to be successful in franchise financing we would boil it down to a few key issues. Want to know what they are? From our perspective it all comes down to a reasonable history of business or management experience, a decent personal financial profile – more about that one later, and access to the 'inside secret' of franchise financing in Canada, which, you may be surprise to know, is the government of Canada!
Let's circle back on those points – and as always it comes down and back to our Boy Scout motto – be prepared. We can see our client's eyes rolling back now when we tell them we need a crisp business plan. That's a key requirement of your ability to obtain finance for a franchise, simply because it's the 'proof', if you will, of your ability to understand and run your business properly. In that document you have info about yourself, the business you are purchasing, the industry you are in, and the financial performance you expect to achieve in your new role as business owner and entrepreneur.
From a lenders perspective financing a franchise business is all about one thing – getting paid back for the loan. So the lender will look at how you have structured the financial portion of your business plan to reflect ability to repay your franchise loan, as well as how much cash flow and working capital is left to pay yourself a salary and run your new business. Could anything make more sense than a properly crafted and positioned business plan – we do not think so.
Your money – you have it, you want to keep it – do not we all. However, whether it's a franchise business or any business for that matter OPM never works – OPM is 'other people's money' and you can not rely on 100% of outside financing to obtain finance for a franchise in Canada. So be prepared to invest anywhere from 25-50% of the purchase price into your acquisition. Coupled with that and this is critical, you must be able to demonstrate that you have run your personal and business affairs respectably from a credit perspective. Obtaining a copy of your credit report, in advance, by you, is strongly recommended.
And, oh yes, what about that Government Issue we mentioned. That's one of the great secrets and tips we promised to reveal. Did you know that probably 90% or more of financing a franchise business in Canada revolves around a special loan program called the CSBF / BIL loan? It's a federal program, and administrated by financial institutions. Whats so great about it – limited personal guarantees, great rates, terms and structures.
Speak to an expert in franchise financing when you are looking to obtain finance for a franchise – seek out someone who is trusted, reliable and experienced. Be prepared, and get ready to be successful.