The Truth About New Business Loans For Your Franchise Investment

You can't handle the truth! We love that now famous movie line

, but we are pretty sure you can handle the truth about one of your major life decisions, completing a franchise investment via new business loans.

When we talk to clients about their desire to finance a franchise it's clear they recognize that this is a specialized type of finance that and are unclear about how to go about completing the financing they need to both acquire the investment and then run the business for future growth and profits .

Let's cover off some of the basics around the truth behind how many hundreds, perhaps thousands of franchises are financed in Canada each year.

There are 3 or 4, depending on size and type of franchise, lenders that are key to completing your franchise investment. The good news is that you know one of them really well, and have some excellent negotiating strength with that person. That person is actually you! Why? Because one of the components of franchise finance is called the owner equity investment. Your part of the funds that you put in are generally recorded as a shareholder loan, and you become in effect a creditor of the business.

That might sound like accounting mumbo jumbo to most of our clients... the truth they are seeking is even more basic than that - ' how much do we have to put in' is always what their questions comes down to! And the truth on that one is that it depends. We can categorically say that over the last couple years with the credit crunch and other factors that you should be prepared to put down anywhere from 30 - 50% of your investment . That in many ways is a good thing because you are helping to shore up equity as opposed to taking on to much debt. If franchises were able to be financed on 100% debt we can assure you there would be many more business failures because of that same fact. If you business falters or stumbles on revenues or collections cash flow problems could set in.

Clients assume, incorrectly, that banks finance franchises outright. We haven't seen that happen once yet - it may have, we just haven't seen it. So getting back to the truth you are looking for, do banks provide new business loans for franchise finance in Canada? You're going to hate us for being vague but the answer is ' kind of '. The reality is that the banks do in fact provide most of the financing for new franchisees in Canada, but they do it under the auspices of a specialized loan called the BIL/CSBF. This loan is actually underwritten and sponsored by our good friends in Ottawa, the federal government. In the U.S. it's called the SBA program; here we call it often an SBL - i.e. Small Business Loan.

The BIL/CSBF loan is a specialized loan with some basic requirements - many of our clients stumble and falter on their own because they are incapable of presenting a package that contains exactly what the banker and government wants to see. We therefore recommend that you seek the services of a trusted, credible and experienced Canadian business financing advisor who can guide you through that process, successfully.

Other ways to compliment the financing of the franchise are equipment financing and term working capital loans

So, did you handle the truth? We are pretty sure you did, and focusing on how things are done properly should assist you in the successful financing of your franchise investment.

by: sprokop

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