It’s that time… you’re looking for a franchise financing loan for your business purchase in the Canadian business environment. Need franchisee finance assistance? Let’s look at what you need to know… and do!

Unlike our good friends in the U.S. the Canadian franchisee entrepreneur has, frankly, somewhat more limited options when it comes to financing their business purchase.

While in the states specialized franchise finance firms abound, along with a number of types of banks that could facilitate your purchase the Canadian borrower quickly finds that not only will his franchisor not provide direct financing .. no surprise there … but equally as challenging is the fact that only about 4 solutions exist in Canada for your franchise loan.

What you need to do is really focus on your franchisee loan as if you were purchasing any other business, either existing, or new, i.e. your franchisee rights and a turnkey solution offered by your franchisor or master franchisor.

What does that mean?Simply that it is back to the basics , which includes a business plan, the ability to demonstrate some operational skills and mgmt. experience, as well as being able to clearly identify that you can contribute the required ‘ equity component ‘ or down payment to your deal.

In finance there is a term called Sources and Uses … it couldn’t be more basic… identifying where you will get your funds from, and then clearly itemizing each individual use.

What are those uses? It’s of course the franchise fee, equipment, leasehold improvements, inventory, working capital, and in some cases, depending on what franchise you are buying, real estate.

The new franchisee is often so caught up and focused on getting a franchise loan that the last thing they are thinking about is short or intermediate term working capital needs… ie the fuel that will finance the business on a daily basis. It’s all those basics, wages and salaries, lease and loan payments, and products and supplies.

So who are the actual franchise lenders in Canada? It boils down essentially to our traditional banks, the government small business loan, commercial leasing and finance companies and in the Canadian environment, 1 or two very specialized franchise financiers that are independent commercial finance firms.

A couple of notes about the players we have just mentioned. The traditional Canadian chartered bank rarely finances a new franchise on its own merits. That is because whether you agree or not the business is viewed as a small business and a start up, with no proven revenues, cash flows, and profits to substantiate the loan. Again, you might think otherwise, but the bank respectfully differs!

By far the majority of franchises in Canada are financed by the specialized BIL loan that is a government guaranteed loan. One note is that this loan has a 350k limit, so not all franchises can be fully financed in this manner.

If the specialized franchise finance firm doesnt have a true program arrangement with your franchisor you may also find a lack of interest in completing a transaction successfully.

Speak to a trusted, credible and experienced Canadian business financing advisor on who can best assist you in your franchisee finance needs.