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A young couple are reviewing their finances to determine if they can buy a franchise in Canada on a limited budget

Are you looking to buy a franchise in Canada but are unsure if you can afford the costs? It’s true, an average middle-class salary alone probably won’t be enough to make your dream a reality. But, that doesn’t mean starting a franchise is impossible even on a limited budget. You just have to know where to find the help you need.

Franchise Start-Up Costs

Start-up costs vary widely and can range from as low as $10,000 to more than $1,000,000. A big factor is whether or not you need to own own or lease real estate for your franchise business. You can find the cost to open a franchise in the franchisor’s Franchise Disclosure Document (FDD). Item 5 contains the initial or franchise fee, or the cost to join the franchise system. Item 7 lists additional start-up costs required such as real estate, equipment, inventory, signage, business licenses, and insurance.


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You will also want to include a budget for professional fees for accounting and legal advice. It’s vital to speak to a franchise lawyer and financial advisor/business accountant before you sign a franchise agreement. They can help you to identify any legal or financial issues that may not be in your best interest.

How Much Can You Afford to Buy a Franchise?


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To determine how much you can afford to invest in a franchise, you need to have a good understanding of your current finances. You can start by determining your net worth by compiling a balance sheet that lists all assets and liabilities. Some franchise experts advise that you should not invest more than 15% of your own money, but this percentage may vary. When you work with a financial advisor, they can help you determine how much of your own money you can afford to invest based on your financial situation.

Unless you are interested in a low-cost franchise, you will likely need to borrow the majority of the funds to purchase your business. In general, lenders require you to provide 20-25% of the total investment. For example, if you have $50,000 to invest, you can research franchise opportunities in the $200,000 range. Before you approach any lender, make sure you are current on all bill payments and correct any mistakes on your credit report.

How to Calculate Your Net Worth

It’s really quite simple to calculate your approximate net worth in three simple steps:

STEP ONE:STEP TWO:STEP THREE:
List your assets (what you own). This may include your:

– Savings
– Retirement accounts
– Market value of your house and car.
List your liabilities (what you owe). This may include your:

– Mortgage
– Outstanding loans
– Credit card debt
Subtract your total liabilities from your total assets and you’ve just calculated your approximate net worth.
Franchisors may have a minimum net worth requirement.
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Traditional Bank Loans

Borrowers with good credit and collateral may be able to get a traditional loan from a bank or credit union. Most lenders are more likely to offer financing for a franchise business because they are associated with an established brand that has been proven in the marketplace. However, if you are interested in investing in a lesser-known brand such as an emerging franchise, or don’t have a stellar credit rating or collateral, a traditional lender may not be an option and you will need to look elsewhere for funding.

Personal Savings

When financing their new business venture, many franchisees will use personal savings like registered accounts such as Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs) to finance their new business. Some franchisees have used their homes as collateral to finance a franchise. But, the overall risk as well as tax implications often don’t make sense to finance a franchise in Canada in this manner. 

Government Assistance Small Business Loans:

Small businesses (including franchises) looking to purchase or improve their assets for new or expanded operations could benefit from the Canada Small Business Financing Program (CSBFP).

This government-sponsored loan program offers up to $1,000,000 ($350,000 for equipment and leasehold improvements). The program only finances equipment, leaseholds and real estate and can’t be applied to marketing costs, royalties, and franchise fees.

A key benefit is that 85% of the loan is guaranteed to the lending Bank by the Federal government. This means less risk to you, the borrower.

Other benefits include:

  • Various Floating Rates, Fixed Rates and Blended Rate Principal Plus Interest and Principal including Interest repayment options available to the borrower.
  • Attractive loan repayment terms ranging from 7 years on equipment, 10 years on leasehold improvement, and up to 15 years on real property loans
  • Business Loan Insurance Plan is available (certain conditions may apply)

The lender (bank) doesn’t provide this free and will usually charge:

  • a loan document preparation fee of around $175
  • a $100 loan application fee
  • a one-time-only Federal Government registration fee (2% of the loan amount which may be included in the amount borrowed)
  • a 1.25% Administration Fee included as part of your interest rate (not much, but something you have to factor into your debt repayment calculations).

Thinking Outside the Box

When more conventional lending sources can’t produce enough cash to fund your franchise start-up costs, you may need to look beyond traditional methods. An investor such as a family member, friend, or business partner may be willing to offer you funding as well. However, allowing others to invest can come with some strings attached.

Investors may require the ability to make decisions about the business and most will expect a return on their investment, which will cut your profits at first. Still, it may be worthwhile to take on investors if it allows you to get the franchise up and running.

No matter what kind of financing you choose, it’s important to get all the facts in advance so that you’re not caught off guard when it comes time to repay loans or investors down the line.

A limited budget does not have to mean postponing or giving up your plans to buy a franchise. By finding the right financing options to meet your needs you can buy a franchise now and take charge of your future.