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One of the biggest hurdles to starting a franchise is finding the money to begin. Funding your franchise isn’t as easy as throwing cash towards a new venture. You want to be thoughtful and intentional about investing, which means you want to pull your money from the right sources.
Understanding how to fund your franchise doesn’t just show up in how you’ll pay for the initial investment. It helps you determine where to open, how much resale opportunity you could have if you decide to exit the contract down the road and, potentially, how large of territory you’ll be able to have. Likewise, knowing how you’ll get the capital you need upfront can help you better understand how you’ll get cash infusion opportunities later in your franchising journey.
Here are the top three ways Canadians fund a franchise so they can get started on the right foot.
Self-Finance Your Franchise
Many franchise owners opt to self-finance their initial investment into a franchise. This approach has its benefits and drawbacks.
By self-financing a franchise, you can avoid interest rates and having to repay lenders. Without those extra costs and burdens hanging over your head, you can save yourself extra stress and worry.
The drawback of self-financing is that you’re using your money to pour into the new venture. While that can be a catalyst to make you want to succeed even further, it can also hinder your family savings plans, leaving you without emergency funds. If you opt to self-finance, it’s important to limit how much of your funds you’ll pour into the business so you can be sure that your family maintains enough for a rainy day.
Get a Bank Loan
The Canadian Small Business Financing Program offers Canadians a financial path to franchising. After the pandemic, Canadians have seen additional financing opportunities and increased loan amounts, opening new doors for potential franchisees. These programs are available to startups or small businesses, including franchises, with annual gross revenues of under $10 million.
You’ll need to go to your local bank, caisse populaire, or credit union and talk to a banker to apply. Once they’ve gathered the information needed, you can get your loan and fund your franchise.
Alternative Funding
Sometimes, you don’t want to take out a specific type of loan. You know you’ll be able to repay the loan and just want the working capital to start. In these cases, alternative funding might be the best option.
Alternative funding comes from independent financial institutions that can offer fixed-term loans, lines of credit, or flexible funds. These financing options allow you to apply and quickly get approved, which is ideal when you already know which franchise you want to start but just need the financing to get going.
Kimberly Crossland is the founder of Roadpreneur and Cruisin' + Campfires, two companies designed to keep families together and living in freedom through travel and entrepreneurship. The goal of both businesses is to inspire meaningful change through the power of a strategic, thoughtful approach to life and business. In her free time, you can find her looking for a new adventure together with her two boys.