I mentioned in a few blogs back that I would like to own a foodservice franchise in the future.
I know I will need to borrow some of my start-up capital from the bank as the estimated total capital cost of franchise I am interested is $573,000 and I need to come up with at least $233,000 of cash or liquid assets.
But what kind of information does the bank require from me?
I happened to be listening to a webinar by a Senior Commercial Account Manager from Royal Bank a few days ago and the websinar provided plenty of information.
To assist franchisee to start their business, bank would provide term loans and Canada Small Business Financing Loan (CSBFL). CSBFL is a Canadian-government-backed loan in order to assist small business owners to have access to a larger amount of funding in addition to what term loans offer. CSBFL and term loans, however, are designed to help businesses purchase, install, renovate and modernize business equipment and other fixed assets. Small business owners still have come up with their own working capital.
To apply for term loans and CSBFL, the bank would need the list of former and current franchisees, the Franchise Disclosure Document, and a business plan. In addition, the bank wants to make sure the franchisee clearly understand the key attributes of the franchise (for instance, how does the franchise make money and what makes the franchise different from their competitors).
Once the franchisee starts the business, the bank offers credit cards, small operating loans, overdraft financing and accounts receivable financing to assist with day-to-day operations.
The webinar also provide information on how franchisor assesses financing. It turns out the bank looks at EVERYTHING in addition to its financial statement. One of the things the bank look at how franchisees are selected and how are franchisees trained. Moreover, the bank want to know if the concept is easily duplicated and if there is communication between head office and the franchisees. Furthermore, the bank want to know if franchisees are getting their values worth from the franchisee fee and royalties.
I am shocked the banks are really looking out for the franchisees. I guess franchisor’s success really depends on the success of the franchisees.
I should start writing my business plan! Feel free to comment below! Catch you on the flip side!
P.S. I am not being sponsored by Royal Bank to write this. I wrote this blog post just because I want to own a business in the future and I want to learn more about franchise financing.