Rates at 2.5%: franchisees face higher borrowing costs

The Bank of Canada’s policy rate increase has put financing back on the agenda for the franchise sector. On 28 October 2026, the central bank raised its target overnight rate from 2.25% to 2.5%. For franchisees using variable-rate credit, this decision could mean a higher interest bill at a time when supply costs remain under pressure.

A quarter-point rise that matters for budgets

According to a report published by L’Express Franchise on 29 October, this is the first policy rate increase in three years, following a series of cuts and holds. The Bank Rate, meanwhile, has reached 2.75%.

The Bank of Canada attributes its decision to persistently high energy prices. It aims to prevent these pressures from spreading further to other goods and services. Its next monetary policy announcement is scheduled for 9 December 2026.

For a franchise operator, the policy rate is not the rate charged on a business loan. It does, however, influence financial institutions’ prime lending rates, to which some borrowing is linked. According to La Presse, as cited by L’Express Franchise, the prime rate is also expected to rise by 25 basis points.

Credit lines and variable-rate business loans are therefore the first forms of borrowing affected. Existing fixed-rate loans will not change as a result of this decision.

What does this mean for a business loan?

The illustration provided by L’Express Franchise is straightforward: a rise of 0.25 percentage points adds around C$250 in annual interest for every C$100,000 borrowed. On a C$500,000 loan, the additional cost is approximately C$1,250 a year.

This calculation is a guide, not a uniform change in repayments for every borrower. It assumes that the increase is passed on in full to the loan rate and applies to the amount in question for an entire year. The actual cost will depend, among other things, on the outstanding balance and the terms of the loan agreement.

The issue affects several uses of credit within a franchise business, including initial investment, equipment purchases and refurbishment. Before adjusting a budget, operators should therefore distinguish between fixed-rate commitments and variable-rate debts, then check with their lender how any rate adjustments are applied.

Further rises are possible, but not certain

The central bank says further action may be necessary, while stressing that it intends to proceed cautiously. This stance does not amount to a firm timetable for rate increases.

Nevertheless, economists at iA Financial Group and Royal Bank of Canada forecast three further increases of 25 basis points, according to La Presse’s reporting cited by L’Express Franchise. This scenario would take the policy rate to 3.5%. It is a forecast, not a decision announced by the Bank of Canada.

For prospective franchisees arranging finance, this distinction is essential. Stress-testing a project against a 3.5% policy rate can help assess its resilience to higher borrowing costs. However, the calculation should use the corresponding business lending rate offered by the financial institution, rather than treating the policy rate as the borrowing rate.

Borrowing costs are not the only pressure to watch

The Bank of Canada forecasts inflation of around 3.5% by the end of 2026, followed by an average of 3% in 2027, before a return to 2% in mid-2028. Its surveys also indicate that businesses intend to pass on more of their cost increases to customers over the coming year.

Fuel, transport and industrial inputs are among the costs cited. For franchisees, this outlook calls for a joint review of financing costs and supply cost assumptions, without assuming that all suppliers will raise prices by the same amount.

Two upcoming dates will provide opportunities to reassess these assumptions: the announcement on 9 December 2026 and the Monetary Policy Report scheduled for 27 January 2027.

Key takeaway: before signing a finance agreement or starting refurbishment work, ask your lender for updated borrowing-cost projections and check that your cash flow can withstand a higher-rate scenario.