Many people see the value in investing in franchises, a successful business plan and model in place, built-in marketing and advertising, head office support, etc. Where many potential franchisees get stuck is the process of becoming financially sound enough to be able to afford to invest.
There are many steps that need to be taken before diving into the complex task of buying a franchise, if you don’t have the cash on hand the first of which is to check your current credit score. There are many online resources to help Canadians understand their credit score. You can receive a free credit file disclosure from Equifax Canada Co. (http://www.consumer.equifax.ca/home/en_ca)
Your credit score is determined by a number of factors: length of credit history, current debt, number of pending credit inquiries, etc. Typically, the higher your credit score is, the more likely you are to get approved for additional credit. Credit scores can range anywhere from 300 to 900.
The most common forms of standard financing are bank loans and/or commercial leases. Any bank loan to start a new business will either have to be secured by your personal collateral (such as the equity in your home). Many Canadian banks offer a Business Line of Credit to assist with the short-term operating needs of your business. A Canada Small Business Financing Act Loan can help you the loan you need to expand, purchase or improve the fixed assets within your business. Business loans that have flexible repayment term to match the needs of your franchise may also be an option. A business line of credit can help assist with the short-term operating needs of your franchise. Capital expenditure loans are perfect when you need access to cash to buy and install equipment, furniture, fixtures and leaseholds for your franchise. A operating line of credit allows you to borrow exactly what you need for your franchise, when you need it.
Most new franchisees find that securing an open line of credit against their home equity is the easiest and least expensive form of bank financing available to them. Leases can also be a favorable option, since they are typically fast to procure and secured by the assets that are being leased (though they sometimes require a personal guarantee as well).
Commercial banks fund many franchises, so look to these lenders first. The single most important issue in landing bank financing is your credit rating. You will need to present a complete loan package including a personal financial statement, copies of personal tax returns for three years, and verification of the source of your down payment.
Speak to your bank or credit union about the Canada Small Business Financing Program (CSBFP), a loan- and loss-sharing program between the federal government and banks, credit unions and other commercial lenders from across the country. The program has been in operation since 1961, and it used to be called the Small Business Loan Program. Financing of up to $350,000 is available to put toward leasehold improvements and equipment, and up to $500,000 for property.
The CSBFP was set up to increase the availability of funding for establishing, expanding, modernizing and improving small businesses, and for capping the exposure of the personal guarantors of the loans. Many prospective franchisees don’t know the program exists.
Loans can be used to finance up to 90 per cent of the cost of purchasing or improving land (in other words, the real property your business will be operating out of), purchasing new or existing leasehold improvements, or buying or upgrading new or used equipment. They cannot be used for the acquisition or license of goodwill represented by a brand or trademark, for your working capital, for inventories, franchise fees, advertising fund fees, legal and accounting fees, research and development, or anything else that might be characterized as “soft costs.”
Franchisees must use their own resources for initial franchise fees, working capital and the costs associated with starting and running a new business.
Prospective franchisees – or any other small-business owner seeking to obtain financing under the CSBFP – must present their business plan directly to the bank, credit union or financial institution and the final decision relating to the loan rests entirely with the lender.
The interest rate is determined by the bank or credit union and it may be variable or fixed, but the maximum variable rate is the lender’s prime lending rate plus 3 per cent, and the maximum fixed rate is the lender’s single family residential mortgage rate plus 3 per cent.
There is a registration fee of 2 per cent of the total amount loaned, which is to be paid by the borrower to the lender, but it can be financed as part of the loan.
The next option to finance your business is a home equity loan, in which your home is used as collateral. The benefits of this are low cost, quick turnaround, and generally low interest rates. Here, the lender is calculating the loan-to-value ratio, which is the amount you owe less the equity.
Unsecured loans where equipment is used as collateral typically carry higher interest rates. Security-backed lending is when stocks, bonds, and other securities (outside of retirement plans) are used as collateral. Here, up to 70 percent of the security value can be loaned, with usually low interest rate and a fairly quick turnaround.
The key issue for franchisees and other small-business operators is that although lenders are required to take security in the assets that are financed, lenders may take an additional unsecured personal guarantee from the principals of the business. That guarantee cannot exceed 25 per cent of the total amount loaned. Traditional bank financing would normally involve a loan to the small business corporation and a personal guarantee of 100 per cent of the value of the loan by ma or pa (or both).
Prospective franchisees and anyone with a small business should be talking to their bank or credit union about financing their new business, or expanding an existing one, through the CSBFP.
What alternative financing options exist for me? In addition to standard sources, there’s always the standby financing source: family and friends. There are also a number of companies that assist people in accessing retirement dollars, to use as a funding source for a franchise business.
Skedaddle Humane Wildlife Control Costs
Most franchises of Skedaddle Humane Wildlife Control begin with the single territory option. This starter program provides franchisees with one service truck. The franchise fee is based off territory population with a cost of $1,000 per 10,000 people and a $25,000 minimum.
The first 12 months lets you grow your business by adding additional service vehicles and increasing marketing efforts. A typical franchisee must be capable of leveraging or borrowing another $25,000 in working capital.
Aside from the above mentioned requirements, franchisees need a vehicle and equipment to get started.
The fact that Skedaddle is a mobile business with no requirement for additional brick and mortar costs is also a financial benefit of a Skedaddle Franchise. The Skedaddle Humane Wildlife Control franchise requires minimal supplies and equipment, with few employees providing a high demand service with little direct competition. Skedaddle Humane Wildlife Control franchises are rapidly profitable. Many of our franchisees earn back their initial franchise fee and royalties within months of opening.
Each franchisee will need a specific analysis to determine his or her best funding options. This is a complex matter that deserves the attention of experienced professionals who work directly with franchise lending.
If you want to learn more about joining Skedaddle Humane Wildlife Control, we invite you to start the process by calling 877-662-2877 or visiting www.skedaddlefranchise.com