Franchisees Can Benefit from a Canada Small Business Loan

If you're thinking of investing in a franchise opportunity, you're not alone. More than ever before, today's entrepreneurs are seeking out opportunities to become successful franchisees. In today's economic climate, however, finding adequate financing for a new franchise can be challenging.

For prospective franchisees, a government-guaranteed loan can not only provide ample financing for an up-and-coming business, but it can also offer easier payment terms than loans from other traditional lenders. For entrepreneurs in Canada, the Canada Small Business Financing program (CSBF) has proven to be a financial lifeline for thousands of small businesses. Since 1999, the CSBF program has provided funding to more than 120,000 businesses, many of which may not have been eligible for financing from other lenders.

Benefits of a CSBF Loan

If you're buying a new franchise business and/or purchasing equipment for your business, a CSBF loan can provide as much as 90 percent of the cost, up to a total of $500,000. Under these terms, you may only need to come up with a down payment of 10 percent, an amount that's significantly lower than the down payment required by most other lenders. Keep in mind, however, that a CSBF loan cannot be used for franchise fees or working capital and also cannot be applied toward inventory, legal and advisory costs or intangible assets such as goodwill.

Typically, for equipment loans, your repayment period will be based on the life expectancy of the asset you're using the loan for. If you use your CSBF loan to pay for a printer for your printing business and the printer has a working life of five years, you'll have five years to pay off the loan. The maximum payback time for most loans, however, is 10 years, unless you can work out a refinancing plan.

As with bank loans, you can choose a floating interest rate, which calculates the current prime rate plus three percent, or a fixed interest rate. With the former, you'll be able to repay the loan at any time, but with a fixed interest rate, there may be penalties. It's a good idea to discuss both options with your lender to find out which plan will work best for you.

Getting a CSBF Loan

Although many banks and other traditional lenders offer help with CSBF loans, some of these institutions aren't as experienced in small business type loan transactions. If you're interested in applying for a CSBF loan, it's a good idea to go to a lender that has a good track record of experience in processing small business loans.

In order to qualify for a CSBF loan, you'll have to prove that your annual revenue (gross) will total less than $5 million for the year that you're applying for the loan. Additionally, you must operate your business in Canada.

Once you've met these qualifications, you'll need to provide your lender with personal financial information, in addition to all of the documents and agreements that pertain to your new business.