By: Romal Bryce

The Canadian franchising sector is resilient and has, for the most part, weathered the economic headwinds of the past eight months.  This is owed in no small part to the character of the franchisees, government stimulus/programs, and their clients. We continue to be bullish on the strength of the Canadian franchising sector; but as the financial effect of COVID will remain imprinted on the economy in the near term, it is important for new and existing franchisees to understand the financing options they have at their disposal to help with business continuity.

Access to traditional financing has – at times – been a challenge for franchisees in Canada; however, programs exist to give owners the financial help that they need.   The Canada Small Business Financing program (CSBFP) has been a preferred option for financing small businesses in Canada since its inception in 1999, with over $20 billion of loans underwritten in Canada since that time.  Anecdotally, we see franchise businesses as significant users of the Canada Small Business Financing program in Canada.

This government-guaranteed loan program has become especially important during the pandemic as it helps ensure the free flow of much needed capital between banks and businesses. The Canada small business financing loan program has other functions as well:

1.     New business assessment tool: Applying for financing under the CSBFP requires you to assess your business needs, your own personal finances and helps plan for your franchise.  Proper planning and budgeting are keys to success as new franchise owners embark upon their entrepreneurial dreams.

2.     Helping to refresh, retool and rebuild: The program also provides financing support to existing CSBFP clients who may need to purchase new equipment or need to complete a brand refresh.  If you already have a CSBFP loan, the relationship manager at your bank can guide you through the process of how to make the program work for you.

3.     Economic Stimulator:  A key component of the CSBFP is a partial government guarantee to lenders that choose to use the program to provide financing to businesses.  Because of this, banks, credit unions and other lenders can continue to help businesses that have positive prospects but may be challenged to obtain more traditional forms of financing at this time.

Franchisees need to remember that the program is very expansive and is meant as a support mechanism for the Canadian small business sector.  Franchise businesses generating less than $10 million in revenue per year, incorporated or unincorporated, can qualify for the program.   The CSBFP also allows for different types of expenditures, including land and building acquisitions, equipment purchases, renovation. In some casesm funds can be obtained for the purchase of existing businesses. 

The CSBFP loan can be used for equipment and leaseholds up to $350,000 and repayment terms are available up to 10 years. For real estate, the CSBFP loan maximum is $1 million with repayment terms of up to 15 years. A borrower can finance $700,000 to purchase real property plus $300,000 to purchase equipment, for a total of $1 million.   

Alternative financing options do exist from other traditional bank loans, to private funding or equity partners.  These alternatives have their own qualification criteria, repayment terms and interest rates.  Some may view these as better options to the CSBFP, while others may consider the qualifying criteria and security requirements a challenge.  In either instance, it is important that franchisees review all options and determine the most appropriate financing option for their business. A banking partner that understands the finance industry can help with navigating these financing decisions.

The Bottom line:  the Canada Small Business Financing Program is franchisee friendly and a program worthy of consideration and discussion with your trusted business advisors.

Romal Bryce is the Director of Growth and Strategy, Diversified Industry Sectors, for BMO Bank of Montreal (BMO). Visit bmo.com/franchising for more information.