George Cohon, renowned businessman and founder of...
As you examine franchisors, they are examining you to try to gauge how successful you will be in business. When a franchisor makes that decision, they take many factors into account. One of those factors is your personal credit history.
Having a subpar credit score doesn't necessarily mean you will be automatically denied. However, it does mean that you may need to go through a few more hoops to qualify for your dream Canadian franchise. If your credit isn't as good as it could be, here are some of the potential ways that can impact your ability to invest in a franchise.
Loan or lease difficulties
You may need a loan to finance your new franchise business. If you are not buying a home-based model, you also may need a lease for the physical location you will be operating from. Getting a lease or loan can be difficult if you have less-than-ideal credit.
To demonstrate to the franchisor that you can get a loan--and a lease, if necessary--you need to create a strong business plan. If you are still unable to get the financing you need despite having a sound plan, you will need to disclose this to the franchisor. When you have already done the hard work, the franchisor may be willing to help you access other funding options outside of traditional financing.
Higher interest rates
In some cases, the lender may be willing to give you the loan you were looking for, but with a high interest rate. This means you will end up paying higher monthly payments.
When you evaluate a high-interest loan, take a close look at what your revenue and monthly costs are projected to be. While you may have a higher interest rate and loan payment amount than you expected, this investment may still be profitable over the long run once you run the numbers.
If you are aware that your credit isn't good, you can also take steps to help improve it before trying to finance your franchise. Paying down debt, for example, can help you boost your score and improve your history.
Don't let having less-than-perfect credit dissuade you from trying to invest in a franchise. Create a strong business plan, talk to your prospective franchisor, and get financing quotes from multiple lenders to see what may be possible in your situation.