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How can you finance a franchise purchase in Canada?
Buyers usually combine a term loan or franchisor-approved financing for the franchise fee and build-out, equipment financing for kitchen or store equipment, and working capital for the opening months. Lenders like franchises because the brand has a track record, but they still want to see your own finances.
Buying a franchise comes with a clear business model and a significant upfront cost. Lenders tend to like franchises because the brand has a track record, but they still want to see your own finances and a realistic plan. From government-backed programs to equipment leasing, here are the financing tools that get franchisees funded.
What a franchise purchase includes
- The initial franchise fee and any training costs
- Leasehold improvements and store fit-out
- Required equipment and signage
- Opening inventory and marketing
- Working capital to cover the first months of operation
Matching each cost to a product
Buyers usually combine a term loan or franchisor-approved financing for the franchise fee and build-out, equipment financing for kitchen or store equipment, and working capital for the opening months. The Canada Small Business Financing Program can also be used for eligible costs such as equipment and leasehold improvements through participating banks.
Questions to ask before you borrow
- What do existing franchisees in your area typically earn?
- Does the franchisor offer financing, or a list of approved lenders?
- What ongoing royalties and marketing fees come out of revenue?
- How long until a typical location is profitable?
The answers affect how much debt the location can carry. Speak with several current franchisees, not only the ones the franchisor suggests.
Read the disclosure document
Several provinces require franchisors to give prospective buyers a disclosure document well before they sign. Read it closely and have a lawyer review it. It sets out fees, obligations and the history of the system, and it is the same document a lender will want to see.
Preparing your application
Bring the franchise disclosure document, a budget for the first year, your personal financial information and a quote for equipment. If you are buying an existing location, include its recent financial statements.
If you are opening a restaurant, our guide to financing for restaurant businesses covers the equipment and cash-flow side in more detail.
Four steps to finance a franchise
List the full cost
Add up the franchise fee and training costs, store fit-out, required equipment and signage, opening inventory and marketing, and working capital for the first months.
Ask the franchisor about financing
Find out whether the franchisor offers financing or a list of approved lenders, and what royalties and marketing fees come out of revenue.
Match each cost to a product
Use a term loan or franchisor-approved financing for the fee and build-out, equipment financing for kitchen or store equipment, and working capital for the opening months.
Prepare your application
Bring the franchise disclosure document, a first-year budget, your personal financial information and an equipment quote. For an existing location, add its recent financial statements.
