Financing Your Franchise Opportunity in Canada

The franchisor says you will need say, $250,000 to purchase his franchise system. That amount covers the license to use his trademark, brand and logo, and may also cover the first month’s supplies to get your franchise set up.

You have half of that amount. Don’t worry. Lack of funds should not prevent you from chasing your entrepreneurial dream. The logical solution is to approach a lender. Lenders like banks are in business to make money so they welcome applications from potential business owners like you.

Follow these guidelines to make the lender see you in a favorable light. Give him the impression that you are a serious borrower they’d like to do business with:

1. Don’t wait for the lender to ask you for information and documentation

Prepare your business plan. It should read like it is well-researched, well-analyzed, and well-written. If you don’t write well, you can have someone write your business plan. There are also books you can read on how to draft the perfect business plan. Your Canadian FranNet consultant can offer his advice.

Your Canadian business plan is important because it tells your lender almost everything he needs to know about the franchise opportunity. Stay focused on the essentials. Present the facts as clearly as possible. Dollar amounts should be included. Your statements must be quantifiable.

2. Complete the lender’s application form thoroughly

Answer all questions on the form. Information like addresses and financial data must be complete. Show consideration to the lender. Show him you’ve anticipated his questions. Your thoroughness facilitates his work, so you can expect a decision sooner than expected. An incomplete application leads to unnecessary delays.

3. Be specific about how much you need and for what purpose

Lenders want to know how and where you’re going to spend their money. The amounts you’re borrowing must be supported by reliable facts. For example, if you tell the lender that you need $26,400 for human resources, give him a breakdown. It could look like this:

• Salaries for two counter persons for 6 months: $24,000
• Cost of uniforms: $400.00
• Training expenses: $2,000

4. Realistic is better than optimistic

Optimism is a healthy sign, but be realistic with your expectations. Discuss best and worst case scenarios with your lender. Demonstrate that you know the Canadian market and that you’re familiar with consumer trends in your province. Don’t lose credibility with your lender by making exaggerated claims.

5. Draw up a repayment plan

A principal concern of lenders is your ability to pay them back and the frequency of your payments. At this time of your life you don’t want to jeopardize your credit standing by defaulting on a loan. As your business grows, you may want to expand. Expansion plans call for additional financing.

Explain to your lender what percentage of your earnings will be reserved for loan and interest payments.

6. Prepare a back-up plan in case of problems

No business ever runs like clockwork particularly in the initial years of operation. Provide the lender with information on worst case scenarios. Explain to him how you plan to address problems arising from operations that may affect the financial side of your business. This means having a contingency plan or an exit strategy.

7. Invest some of your own funds

Demonstrate to your lender that you’re serious because there’s a lot at stake. Typically, 25-30% of the total investment will be your money. Financing is relatively easy to get for 70-75% of the total investment including working capital.

8. Develop empathy

This means putting yourself in the lender’s shoes. Pretend you’re the lender. Someone who wants to become his own boss approaches you for money. What are the things that would concern you most?

• Can he pay me back?
• How will he pay me back?
• How committed is he?
• Is he the type who will be hands-on or will he rely on others to run the show?

Lenders have developed sharp instincts about borrowers. They’ve seen and met all kinds. Increase your chances of obtaining that much needed loan by thinking like them.

9. Don’t give up!

If you are turned down for a loan, don’t think it stops there. Cultivate persistence. A rejection is an excellent opportunity for you to hone your skills and your problem-solving skills. It was the loan that got rejected, not you. Don’t take it personally.

By being persistent, the lender will realize you’re serious about the franchise and that your motivation is high. The saying – try and try until you succeed – rings true for franchise loan applications.

10. Mindset

Borrowing money is not easy. Not everyone who applies for a loan gets approved. Keep in mind that your journey to financial freedom has just started and you’re on learning mode. Be positive and be willing to provide whatever the lender requests. And the sooner you comply with his request, the sooner you can obtain those funds.

Want to know more? Fill the Find your Perfect Franchise form on the right so we can introduce you to your Canadian FrantNet consultant immediately!