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Restaurant Loans: Franchises And Non-Franchises

Running a restaurant in Canada, both franchises and non-franchises, requires a unique blend of personality, business savvy and customer service skills. It also requires having a firm grasp of the profitability of your operation. There are so many facets to running a restaurant that profit margins can easily disappear without your realizing it. Food and other inventory can be wasted needlessly. Meanwhile, rent, utilities, insurance, payroll and the cost of supplies continually threaten to chip away at your bottom line. Restaurant loans are provided by lenders who want to help your business grow. These loans can help you manage the constant challenge of maintaining cash flow.

Restaurant owners should identify dependable sources of financing as quickly as possible. Canadian banks can be unpredictable regarding their lending practices toward both franchise and non-franchise restaurants. Sometimes, they’ll offer restaurant loans easily. Other times, they’ll apply more stringent controls. When you need a quick source of working capital (for supplies, payroll, or unanticipated expenses), that capital should be available to you. Below, I’ll explain the process of securing a restaurant loan for both franchises and non-franchises. Plus, I’ll describe an alternative financing source that may prove invaluable to you.

Franchise And Non-Franchise Restaurant Loans

Many restaurant franchisees are surprised to learn that it’s often no easier to secure financing than it would be for a non-franchise restaurant. The reason for this is that traditional Canadian lenders (such as banks) don’t consider a franchise operation any more viable than a non-franchise. Both types of restaurants are susceptible to the same market forces. Both experience the same operational issues. And both have many of the same opportunities for success and growth. In truth, some succeed while most fail.

Even owners of well-known franchises like McDonald’s, Aamco and Subway have had difficulty in securing restaurant loans. The reasons have less to do with the brand name of the franchise and more to do with the bank’s perception of the owners’ ability to repay the loans.

What Lenders Ultimately Want

Restaurant franchises are usually profitable for the franchisor, but less so for the franchisee. Banks realize that franchisees must pay a portion of their revenue to the franchisor in the form of royalty fees. Plus, there are usually substantial franchise fees to start the business. These expenses can impact the frachisee’s ability to repay the restaurant loan.

That’s why banks and other lenders want to know about a franchisee’s personal credit history and outstanding debts. They inquire about existing tax liens against property that may be used as collateral. Lenders consider those factors far more important to the restaurant owner’s success than the brand name of the franchise.

Lenders also want to know where the restaurant is located and the numbers behind the operation. While a restaurant in the heart of downtown Toronto may attract a large volume of business, rent and other expenses will be higher than in Edmonton, Winnipeg, or Windsor. The history of the restaurant is also important. For example, operating successfully for 3 years in the financial district of Montreal implies a thriving business. In such cases, banks are more likely to award a restaurant loan regardless of whether it’s a franchise.

When Your Loan Application Is Declined

If you’re a new restaurant owner or you’re thinking about starting a restaurant, obtaining a loan from traditional sources will be difficult. Lacking a history in the industry, your options for a typical bank loan will be limited. In the event your restaurant loan application is declined, you can take advantage of a merchant cash advance. It’s a flexible form of working capital that is repaid based upon your credit card receipts. As the volume of your sales fluctuates, the amount paid to service the advance also fluctuates.

Access to financing is essential for any restaurant proprietor, franchisee or otherwise. Restaurant loans can be a fantastic source of working capital and often provide an amortized schedule that spans over 20 years at a competitive rate. Unfortunately, they’re not easy to secure. When you’re declined for a loan, consider using a merchant cash advance. For many Canadian restaurant owners, it provides the dependable solution to cash flow issues.

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