Yes, you’re looking for a loan for a franchise, but who in fact is lending for franchising finance in Canada and what are the criteria. Is there a way to ensure you have access to all aspects of franchisee loans? Some good questions – let’s explore some even (hopefully!) better answers.

A few years ago as the Canadian franchise industry (and all businesses in general) recovered from the global financial crisis it probably was the worst time even to seek franchising loans. But the dust has settle, the Canadian economy seems to be firing on all cylinders, and the only question you as a franchisee want to know is ‘ where’s my loan approval’?

While Canadian banks promote actively that they support franchises in Canada the reality is that quite often, in fact almost always! … they don’t do this directly. That probably simply comes from the fact that in many aspects franchises are viewed as start up in nature – notwithstanding the proven business model and brand you as the franchisee have bought into. So that means from a fundamental finance point of view that there are no strong opening balance sheets, historical cash flows, and proof of profitability. In essence you’re a start up… and start up financing is hard to find.

So how in fact do the banks finance franchises? The reality? They do it under the auspices of the BIL/CSBF loan program, which is a government guarantee to the bank for the majority of the loan.

There are of course other sources of franchise loans. They include specialized franchise finance organizations, private commercial finance firms, and to a certain extent equipment finance firms that will finance certain hard assets associated with your business.

The key aspect of getting approved for financing under the Govt loan program is your ability to find an experienced banker who is both familiar with the program and can help you identify the key requirements of the loan . Another method in which you can address this ‘ search issue ‘ is to seek out a trusted, credible and experienced Canadian business financing advisor who has the established relationships and knowledge to fast track approval success.

In the U.S., which has a similar program almost 25% of all loans made under their program are for franchises, and we think that’s probably a similar, if not larger number in Canada. So if your competitors are getting franchising finance, why shouldn’t you… right?

If you are buying a master franchise or have multiple locations in mind various other options might in fact be available – for example assistance from a private equity group, etc. But the reality is that one individual franchise will never qualify for this type of financing participation.

The equity, or down payment component of a franchise loan is critical – It can be anywhere from 10-50% and it’s a fine line that has to be managed relative to the amount of personal funds you commit and where there will come from – i.e. collapsed savings, collateral mortgages on your home, etc, Remember the saying ‘ once you spend it, its gone! ‘which we caught recently.
The reasons you want to get a loan for a franchise are quite clear – owning a business, financial independence, etc. Accessing the right type of available finance for that entry into entrepreneurship is critical. Seek out and talk to an expert in franchising finance options.