Funding Your Franchise Without the Bank
The franchise process in Canada has many moving parts, and one that sometimes proves to be troublesome for some prospective franchisees is the financing. You need to be able to survive while your business grows, so emptying all your pockets for your business at the start isn't the best move. If you're having trouble with traditional lenders, don't count yourself out just yet. Try one of these alternative funding options for your franchise instead.
Franchisor direct or third-party financing
Some franchisors offer direct financing to franchisees. This could take the form of a promissory note for part or all of the initial franchise fees or more extensive lending if the franchisor is able to provide such a program. Ask the franchisors you're considering whether they offer any direct financing, and if so, what the details are. Other franchisors work with third-party lending vendors to provide indirect leasing or financing options for franchisees, so be sure to ask about this option, too.
As individual or corporate investors who are seeking potential opportunities to increase their returns, silent partners will typically provide startup funds for a business in return for a share of that business or convertible debt. Naturally, a loan from an silent investor may end up being more expensive in the long run, but this can be a viable option and something the franchisee can do on his or her own, even if the franchisor hasn't approached silent investors before.
Some franchisees are now accessing retirement plan funds to invest in their franchises, usually with a self-directed IRA. However, you need to access your retirement money in a way that complies with all IRS and legal requirements. Specialists who deal with using retirement money for business investment can help you avoid costly mistakes.
A fourth option is less about funding types and more about changing your strategy. You could opt for a B2B or service franchise that has an initial investment for far less than the typical fixed location or retail concepts. You may be able to find one you can afford that meets your goals and doesn't call for outside funding.
Financing your franchise is a serious commitment no matter which funding strategy you choose. Before you make your final decision, make sure you completely understand the ins and outs of the funding source, including what you could lose.