4 Secrets to Financing A Franchise in Canada

The inside edge. You want it, we have it! Have we got some tips and secrets to share with you?

We’re talking about financing your franchise – the successful completion of your entrepreneurial dream in Canada. As a franchisee, you want to be aware of your options in loans and funding programs that are geared specifically to financing a startup business in the booming franchise industry.

We’re going to discuss 4 key elements of a proven formula for franchise success. What are they? Simply speaking it’s ensuring you have a business plan that accurately resembles the financial aspects of your business. Number two is the type of emphasis that is put on your background and credit history. Number 3 is the knowledge of franchise financing options in Canada, and number 4, (often # 1 in your mind probably) the number of personal funds you have to commit or invest to get your business going and your franchisee funding approved.

Let’s dig in! OPM. What is it? It stands for other people’s money and it’s critical you understand that a franchise is composed of two elements concerning your financing plan – debt (what you borrow) and equity (what you put in). Our key point here is simply that while there is no proper mix of what works for the combination of those two elements. No franchise is financed with 100% borrowed funds – conversely, you don’t want to ‘ pay cash ‘ for your business and risk all, or a lot of everything you own (house, savings, etc.) for a start up a business such as a franchise.

We will also share with you that some of the very specialized franchisee loan programs in Canada typically require a 30 – 40% owner equity, or down payment. That can be achieved in several different ways.

Should you tap into your retirement plans to fund your franchise? That’s not our call, but if you have capital outside your savings we would not recommend collapsing RRSPs, or taking out home mortgages, etc. for financing and funding your franchise.

Clients often ask how their personal credit history affects their ability to get franchise financing. In general, we can say it’s a key point in the whole approval process. Many Canadians aren’t aware that the entire credit history system in Canada is based on a simple score. You should have a score of at least 650 to be successful in traditional franchise finance. So check your score in advance. And by the way, higher is better!

The business plan is a key element of your whole package. Many clients don’t have the experience or financial acumen to prepare a proper plan. Not a problem as you can seek a Canadian business financing advisor, or accountant, etc. to prepare your plan. A good basic plan comes at a very reasonable cost.

The business plan is your ‘ total picture ‘of your franchise. Basic elements are yourself, your background and business or industry experience, info on your franchise, and some basic financial projections. Naturally the better recognized and successful your brand the more attractive you’re perceived chances of success are.

As a franchisee what loans and funding are available in Canada. As unbelievable as it may seem the government of Canada, via Industry Canada, is one of the largest players in your franchise success. A program called the BIL / CSBF program is hugely popular and finances mot franchises fewer than 350k in Canada. We strongly recommend you seek out and investigate this program, it’s probably the key to 95% of our client’s success in financing a franchise with funding that comes with great rates, terms and structures, and limited guarantees. Bottom line, check it out!

So there you have it, 4 key elements, and secrets if you will, to franchise financing success. Summarized… a solid business plan, some good business or industry experience coupled with a reasonable personal credit history, a down payment that is aligned to your overall financing needs and personal situation, and, last but not least, knowledge of programs such as the BIL which are geared toward franchise finance success.