In our previous article, we explained some basic rules you should follow before you apply for financing: evaluate your financial needs, calculate the total costs of starting your franchise company, and finally, estimate the total available amount you can invest in your business project.
Sources of Financing
Very few franchisees can fund 100% of their franchise projects from their personal savings only. Most people will turn to financing to become a franchisee. There are several options available to entrepreneurs. Here are the main sources of funding to consider when starting your business:
Your Financial Institution
Your bank can offer you several types of loans and lines of credit. Financial institutions have their own selection criteria for business financing. Some of them would prioritize certain business sectors and refuse others, such as retail, or would have specific financing solutions for the franchise industry. Your financial institution can advise you on the best options available to you to buy a franchise. Make sure your project is well explained and properly presented in order to be suggested the most suitable financing solutions for the business opportunities you are interested in. In some cases, it is possible to obtain a deferred capital repayment option for a certain period of time, which would be a great support for your startup. We can also refer you to our partner, Royal Bank of Canada. Contact us
The support from franchisors can take different forms. Some franchisors with a large established network provide financing to their franchisees. Usually, the terms and conditions of such internal financing would be similar to those of your financial institution, but with easier access to financing. In fact, signing a franchise agreement with a franchisor usually means that you have passed a formal selection process and that you meet the criteria and profiles established by the franchisor. Obviously, the franchisor already knows his business concept and is therefore confident of his success potential. At the same time, he is getting closer to his goal of finding a qualified buyer for his franchises for sale.
Those who do not offer direct internal financing may be able to help you establish relations with financial institutions. Fewer franchisors now provide financial forecasts and a business plan since there are too many factors beyond their control that could influence the success of your business. However, many of these franchisors can give you the tools needed to put together your financial forecasts. You must prepare potential profitability charts for your company, considering your business location and the existing competition.
Finance lease is a type of lease that gives you the option to acquire ownership of the financed assets at the end of the lease agreement. There are many companies that specialize in this type of financing. Your franchisor would inform you on your financing options through leasing or could already have agreements with a supplier and the terms of such financing would be included in your franchise agreement. This type of financing is only available for assets of a certain minimum value.
The grant you obtain to open your franchise does not have to be repaid, which makes it very attractive for business owners. However, it is no easy task to find grant programs for which your project or profile would qualify. Our partner, Futurpreneur Canada, can provide you assistance and support to draft your business plan, which is often still required to obtain financing, and also to identify any applicable grants or other types of financing options available to you. Futurpreneur Canada often takes part in franchise shows where you can meet them to make your dream of becoming a franchisee a reality.
Another option would be to get loans from investors, people who are willing to help startup entrepreneurs. They usually know you well and want to invest in your project or they anticipate high potential returns on their investment. Most of them would ask for a share in your company either from the start or after a certain time if you are unable to pay them back.
With good advice and solid support, this step can be relatively easy for the franchisee to complete. We would be happy to help you get in touch with the right people based on your individual needs. Contact us
Sylvie Grégoire, FlagFranchise