The Truth About New Business Loans for Your Franchise Investment

You can’t handle the truth! We love that now famous movie line, but we are pretty sure you can handle the truth about one of your major life decisions, completing a franchise investment via new business loans.

When we talk to clients about their desire to finance a franchise it’s clear they recognize that this is a specialized type of finance that and are unclear about how to go about completing the financing they need to both acquire the investment and then run the business for future growth and profits.

Let’s cover off some of the basics around the truth behind how many hundreds, perhaps thousands of franchises are financed in Canada each year.

There are 3 or 4, depending on size and type of franchise, lenders that are key to completing your franchise investment. The good news is that you know one of them really well, and have some excellent negotiating strength with that person. That person is actually you! Why? Because one of the components of franchise finance is called the owner equity investment. Your part of the funds that you put in are generally recorded as a shareholder loan, and you become in effect a creditor of the business.

That might sound like accounting mumbo jumbo to most of our clients… the truth they are seeking is even more basic than that – ‘ how much do we have to put in’ is always what their questions comes down to! And the truth on that one is that it depends. We can categorically say that over the last couple years with the credit crunch and other factors that you should be prepared to put down anywhere from 30 – 50% of your investment. That in many ways is a good thing because you are helping to shore up equity as opposed to taking on to much debt. If franchises were able to be financed on 100% debt we can assure you there would be many more business failures because of that same fact. If you business falters or stumbles on revenues or collections cash flow problems could set in.

Clients assume, incorrectly, that banks finance franchises outright. We haven’t seen that happen once yet – it may have, we just haven’t seen it. So getting back to the truth you are looking for, do banks provide new business loans for franchise finance in Canada? You’re going to hate us for being vague but the answer is ‘ kind of ‘. The reality is that the banks do in fact provide most of the financing for new franchisees in Canada, but they do it under the auspices of a specialized loan called the BIL/CSBF. This loan is actually underwritten and sponsored by our good friends in Ottawa, the federal government. In the U.S. it’s called the SBA program; here we call it often an SBL – i.e. Small Business Loan.

The BIL/CSBF loan is a specialized loan with some basic requirements – many of our clients stumble and falter on their own because they are incapable of presenting a package that contains exactly what the banker and government wants to see. We therefore recommend that you seek the services of a trusted, credible and experienced Canadian business financing advisor who can guide you through that process, successfully.

Other ways to compliment the financing of the franchise are equipment financing and term working capital loans.

So, did you handle the truth? We are pretty sure you did, and focusing on how things are done properly should assist you in the successful financing of your franchise investment.

Auto Loans – Whats The Best One For You?

If you’ve read various articles about buying a car, you are familiar with the car sales language and the ways of negotiating with a professional car salesman. Let’s say you’ve settled for the best deal and eventually agreed to a price you can afford.

Not many people are aware of the ins and outs of car dealership. When they finance a new car, the finance person is actually working on his commission. They will never tell you that the whole financing deal you get is still up in the air, though.

Things that get added on in the last phase of the deal such as alarm systems, undercoating, extended warranties, and the likes – are always what the dealership is all about: making money on these. The finance person’s role is to sell you of such items after you’ve said yes to a price for a car.

If you’re like many people, paying money to buy a new car isn’t in the least possible to get one, anyway – and even if it IS possible, you may not consider to use your own money in the bank for a new vehicle. This means that you are either going to buy the car by financing it, or by leasing. If you’ve decided on the former, then you’re most likely financing it through the car dealership, a family member, an online financial institute, or through a bank or credit union.

While car leasing is a good option for many situations, it’s a different story. If you know how you want to buy a car through financing rather than pay in cash, then you are required to read this and decide how to get the best financing deal through auto loans.

On the other hand, if you have the cash for your car and are thinking of doing it, how sure are you if it is really the best thing to do? Below are some instances when buying a car and paying in cash is in your best interest:

- If you have plenty of debt already but enough money on hand, and don’t want to add any more damage to your credit standing;
- If you don’t have a very good credit standing and would have to pay a high interest rate;
- And, if you could pay a lot of interest by financing, that total of money than you could earn if you kept it or put it in a bank instead.

However, if you’re like several people, you definitely need to finance your car. Below are the pros and cons of auto loans:


- Pros: Sometimes competitive, fast, and convenient.
- Cons: Can cause a lot of pressure, normally not competitive. be ready for a great sales push on car accessories. Auto loans are always front-loaded (payments comprised of more interest at the start of the loan than toward the end – that’s not good if you think you may be paying the auto loan early as expected).

Credit or Bank Union

- Pros: Always can determine if you’re paying a lot for a car, no sales pitch for accessories and the likes, personal service, and good, competitive rates are available. Both always offer disability insurance with loans, or life insurance for free – loans are normally offered with simple interest and is spread out evenly throughout the loan’s term).
- Cons: Compared to dealership financing, it is not as convenient; can’t set up any appointment for such on evenings or on weekends.

Home Equity Loans

- Pros: Competitive rates, and you can subtract some of the interest off your taxes.
- Cons: It may be risky to include your car to your home loan.

Friend or Family member

- Pros: Normally competitive rates, sometimes flexible, easy, with personal service.
- Cons: Could jeopardize ties with both.

How to Determine the Rate

In auto loans, when financing a new or used car, the interest rate you get can differ quite a bit from the rates being offered on newspapers or on TV. Your credit rating is probably the main influence on your rate; both credit score and credit history tell creditors a lot about your financial status, and are there to give them an idea or two of what their risk is – if they lend you the money you need. If your loan is seen as high-risk, they always increase the interest rate.

Another factor that influences the rate you get is the loan’s term. Normally, the shorter the loan, the lower the rate is. Always remember that the shorter the loan term, the higher your payments will be.

Compared to new cars, used cars will have higher rates. Lower rates apply on new cars. In some cases, credit unions charge the same rate to both new and used cars.

Another factor is your location. Your friend may have gotten eight percent on the other side of the country, but in your location, eight to ten percent may be the lowest rate you can get.

While these are just a few of the typical things that influence the rate you find through a financial institution or a bank, financing through the dealership may or may not work as stated above.

Comparing Car Loan Quotes

Car finance is used by those purchasing vehicles in order to be able to afford to buy the cars that they want. This then enables those who perhaps could not otherwise to afford to drive a car and potentially a new high performance vehicle even, in which case most of us will need some form of loan.

Often when buying a car you will be offered a car loan from the dealers themselves, or from your bank. However these will very rarely be the cheapest loans available and might involve hidden costs. What might seem like a very small difference in interest on your loan actually equates to an awful amount when paying back those amounts over a long period of time and for that reason comparing car finance quotes is an important way to save a lot of cash. There are many companies that offer car finance specifically, and these will often offer lower prices as a result of specialising in that area.

At the same time comparing car finance quotes is important because different car finance companies might be better for different demographics. For example many people who have poor credit ratings might find themselves unable to get car finance. A bad credit rating is a reflection of a previous inability to pay off debt, and so many loan companies will be afraid to lend them money for fear of not getting it back. Such parties however can get loans by comparing car finance quotes that are for ‘guaranteed’ car loans for any credit rating, but as these are likely to be at a higher rate it is even more important for this group to take time comparing.

Other aspects can also affect your car loans and this can include things like the time scale in which you intend to pay back your loan, or the amount you intend to borrow (which might also be affected by whether you need a new car loan or a used car loan). The reliability of the company offering the quotes might also vary and it is important when borrowing this much money to ensure that it is coming from a reliable and trustworthy source.

The best way to go about comparing car loan quotes is online where you can quickly get information from many different companies very quickly without having to speak to anyone or leave the house. Using comparison sites you can type in a few of your deals and then get quotes from a large number of sites which is one of the fastest ways available to narrow down your choices. From here though you should still call up the top choices in order to speak with them about your specific circumstances and to see if that changes the price of their quote. You should also spend some time researching the company (which can also be done online) to ensure that they are reliable and that other customers have good things to report on them. Spending this time and effort in comparing car finance quotes should ensure that you end up with the cheapest rates possible and that you are able to be confident that you are getting a good service.