3 Financing Flubs Canadian Franchisees Can't Afford to Make

With it comes to franchises in Canada, funding can be a barrier for some people. With financing, however, you can land the right franchise without struggling from the start or never even getting off the ground as long as you avoid these incredibly common financing mistakes.

Expecting financing to be offered by the franchisor

Some franchises do offer financing or help obtaining it through established relationships, but this isn't true of all of them. You need to draft a financing plan of action and get the ball rolling before you're in the midst of the franchise process so you don't end up stonewalled partway through. Speak to the franchisors you're considering about their financing options, if any, and what type of assistance they offer franchisees with obtaining funding so you know what to expect and what you need to handle.

Not exploring all your options

As with other financial products, comparison shopping for your franchise financing is recommended so you get the best rate. There are not a million options out there, but you don't want to be stuck with just going with your local bank's business loan program for all your expenses, either. As reported by the Globe and the Mail, many banks and credit unions are a part of the Canada Small Business Financing Program, through which franchisees can get affordable business loans for equipment and real estate costs (https://www.theglobeandmail.com/report-on-business/small-business/sb-money/financing-a-franchise-this-programs-for-you/article4420766/). In short, don't sign any final agreements until you know exactly what's available to you.

Borrowing too much or too little

The amount you finance needs to be something you can handle paying back. As with any new business, you likely won't be swimming in profits at first, so you have to be able to weather your payments and handle the costs of your new business at the same time. However, borrowing less than you need can also put you in a difficult position because you may not have enough cash flow to run the franchise and grow enough so that the business can become profitable.

To know what you need to borrow, you'll have to sit down and get an accurate picture of your current finances and the costs of the franchise down on paper. Don't just look at the short term; consider where you and your franchise will be one and two years down the line in both the best and worst case scenarios.