Franchise Financing in Canada
Franchise financing in Canada has some major similarities towards the U.S. market, but differs in certain key respects. This information will explore a number of individuals similarities and variations we have observed available on the market. Increasingly more entrepreneurs have course searching at franchise financing for a mix of both employment and entry intro entrepreneurship within reduced risk mode. In other words that the proven franchise concept enhances likelihood of business success.
The possibility franchisee has selected his business, and it has hopefully prepared either by himself or with specialist help a strategic business plan that ultimately has two purposes: to effectively finance the venture, and next, to watch lengthy term progress against initial goals and projections and assumptions. The strategic business plan, when correctly done, allows the financial lending requirement to ‘ fall out’ from the financials. In other words that proper opening balance sheets and funds outlays will find out the total financing needed. The financials have to be specific in this region.
In Canada nearly all franchise financing is performed underneath the auspices from the CSBF loan program. This is actually the same as what our buddies within the U.S. call the Small business administration ADMINSTRATION. CSBF means CANADIAN Small Company FINANCING program, and it is a authorities program underneath the auspices of Ottawa. The key point this is actually the government has permitted the Canadian chartered banks to ‘ administer ‘ this program. The federal government essentially ‘ guarantees’ the borrowed funds towards the banks that have fun playing the program.
Franchise loans underneath the CSBF program have excellent rates, terms, and structures. Typically they are 3% over prime rate, 5-7 year terms, and versatile payment and repayment schedules. In the present liquidity crisis and market turmoil re bank financing etc a lot of lenders have either altered their look at certain aspects of franchise financing, or in some instances have brought out from certain business segments they view as too dangerous, or that they carry an excessive amount of exposure. Center /hospitality industry is a great one. A majority of franchise financing is performed for that Canadian restaurant and hospitality industry.
Many business proprietors augment the CSBF franchise loans with HELOC’s. ( Home equity credit lines ) These HELOC’s have a tendency to backstop the funds put in the venture through the bank and government loan. Regrettably many Canadian prospective franchisees need to make use of RRSP savings, that has some tax implications they ought to consult with their consultant.
Franchise financing in the present 2009/2010 atmosphere needs a solid owner equity investment. In some instances this amount approximates 100%. Which has the financial institution loaning you One Hundred Dollars,000.00 underneath the CSBF program, and also you committing One Hundred Dollars,000.00 also. This types of course assumes you’ll need Two Hundred Dollars,000.00 for the venture in cases like this. Opening balance sheets made by the dog owner or their consultant and consultant should reflect positive capital ratios that satisfy the government program needs.
The CSBF loan program finances only certain asset classes, and proprietors should investigate or depend on their own consultant or consultant in regards to what could be financed. Typically soft costs for example franchise charges are handled by the dog owner directly, and never financed. Franchise financing is much more challenging today considering that most financiers have either temporarily ( or permanently!) exited industry. The franchisee should investigate all options completely and know very well what financing choices are available and which options most closely fits their demands and private economic situations. You can do this with proper research or by having an experienced consultant within the franchise financing industry.