Franchisees contribute significantly to Canada's economy. Fortunately, Canadian banks have remained receptive to financing franchisees who represent quality lending opportunities. All the major banks have established national franchising services teams, who work with franchisors to develop financing arrangements for franchisees. These teams also ensure the bank's account managers are familiar with franchising.
As a prospective franchisee, you must decide if a bank will be your primary source of startup financing. If so, you must understand what it takes to obtain that support.
Getting banking advice
It is a good idea to meet with a bank even before you decide to buy a franchise. Use this first meeting with the banker to determine your financial capabilities and listen to the banker's advice about franchises you're interested in. The banker can even provide you with business contacts and give you tips on the right questions to ask a franchisor. Using his or her expertise may save you a lot of time and energy.
Once your research is complete and a decision made on which franchise to buy, the next steps are usually development of a business plan, preparation of financial forecasts and completion of an application to the bank for financial assistance. These elements are crucial, as they will not only help you reaffirm your decision about which franchise to buy, but also strengthen your case to the banker later on. These few pieces of text will make or break your financing proposal.
How to find the right bank
Your franchisor may have established financing arrangements for its franchisees with one (or several) banks. These arrangements (often called 'programs' or 'packages') can save you the trouble of trying to negotiate financing independently. Having a program in place ensures the bank is familiar with the franchise business concept. It may also include key benefits, such as lower interest rates, higher levels of financing, simplified application procedures and lower fees.
Not every franchisor has an established financing program with a bank. This need not mean its system is weak or no bank is prepared to offer customized arrangements. There may be a number of reasons for not having a program in place; as a prospective franchisee, you should ask what they are.
Current franchisees have already been through the process, so seek their advice and learn from their experiences. Do not overlook business friends and professional contacts—including your existing banker—as they may provide valuable opinions, too.
