Buying a Franchise in Canada: Preparing Your Finance Application

Financing a franchise purchase takes more than a brochure and an entry fee. To join a franchise network on a sound footing, you need to present the lender with a well-documented business proposal, explain where your own contribution comes from and show how the business will repay its debt. Here is how to prepare your application without confusing a bank’s interest, the franchisor’s approval and funding that is actually available.

1. Set out funding needs you can substantiate

Start with a table showing how the funds will be used and where they will come from. List the project’s costs on one side and the funds that will cover them on the other. The two totals must match.

Uses of funds include the purchase price or start-up costs, fit-out work, equipment, stock, professional fees and the cash needed to launch the business. Do not simply copy the brand’s advertised ‘initial investment’: specify what each estimate includes and excludes.

For each item, attach any available supporting evidence: a quotation, supplier proposal, draft contract or detailed estimate. Also state when payment is due. A cost payable before opening could cause problems if the lender only releases funds once it has received invoices or certain conditions have been met.

Key question: which costs will the lender finance, which will you need to cover yourself, and when will the money become available? Ask the lender for a precise answer rather than assuming that an advertised loan amount tells you how the funding will work.

2. Document your own contribution clearly

The franchisor and the lender may have different requirements for your own financial contribution. Acceptance of your application by the brand therefore does not mean that the bank will accept your funding arrangements.

Prepare a statement of your personal financial position: assets, debts, recurring commitments and funds you can access. Clearly distinguish between:

• available savings you intend to invest;
• proceeds from an asset sale that has yet to take place;
• contributions from any business partners;
• money you have borrowed personally.

Money drawn from a personal line of credit remains debt, even if it is deposited in the business account. Explain its source and how it will be repaid rather than describing it as savings.

Ask the franchisor and lender what they will accept as your contribution and which supporting documents they require. If a family member or someone close to you contributes, make sure the nature of that contribution is clear: a gift, a loan or an equity investment. These arrangements carry different obligations and must be properly documented.

3. Build your application around repayment

RBC’s franchise buying guide recommends a structured proposal setting out your funding needs, prudent expectations and how you will repay the money borrowed. Your application should therefore explain how the business will work financially, not just why the brand is attractive.

Bring together a summary of your experience, a description of the outlet, the investment budget, available contractual documents and cash flow forecasts. If you are buying an existing franchise, also request the relevant historical financial information.

Include scheduled repayments, interest and other financial commitments in your forecasts. An accounting profit does not guarantee that the business will have enough cash available when a loan payment is taken from its bank account.

Also prepare a less favourable scenario: a delayed opening, additional costs or a slower start to trading. The aim is not to promise that there will be no difficulties, but to explain what action you could take and the limits of your financial resources. Clearly identify any assumptions that have not yet been confirmed.

4. Align financing with legal obligations

Franchise rules vary by province. In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 requires, subject to applicable exceptions, a disclosure document to be provided at least 14 days before a franchise-related agreement is signed or a payment is made.

This document includes information about costs and proposed contracts. It is an important part of preparing your application, but receiving it does not guarantee that the business will be profitable or that you will obtain a loan.

In Quebec, there is no specific legislation imposing a general franchise disclosure regime; the general rules of the Civil Code of Québec apply, notably to the contractual relationship.

Have your lawyer coordinate the lender’s timetable with your contractual commitments. Do not assume that being refused finance will automatically release you from a signed contract. If you negotiate a financing condition, it must specify the deadline, the requirements and what happens if the condition is not met.

5. Check the offer before relying on the funds

Distinguish between an encouraging discussion, an indicative proposal and approval subject to conditions. Ask for a written offer specifying the amount, interest rate, fees, amortisation period, repayment terms and conditions for releasing the funds.

Also check which documents are still outstanding, how long the offer remains valid and which obligations you must meet after opening. Compare offers on their overall cost and how they work, not just the headline interest rate.

Key takeaway: before making any irreversible commitment, put together a substantiated budget, a traceable personal contribution and a finance offer whose terms you fully understand.