You’ve found some gas stations for sale and now you need financing. Many misconceptions exist about which is better for financing, SBA or conventional financing. Many people are under the misconception that SBA is somehow sub-standard financing or is expensive financing. Many people also assume that conventional loans are cheaper than a government backed business loan.The good thing is that your calculator never lies. You can always figure out which one is the best by using cost of funds and return on investment calculations.Conventional financing for gas stations and convenience stores frequently offers the advantage of an interest rate that is typically a little lower than SBA rates and normally the speed of approval and closing is usually a little quicker than that of SBA financing. There is also normally a little less paperwork involved in the process. With conventional financing, most of the time a borrower will approach a local or regional bank and the borrower will many times establish a depository relationship with the bank.The disadvantages of conventional financing are that you normally can not finance working capital, inventory and frequently you can not finance the good will. The amortization periods are usually shorter also. These notes are normally due in five to ten years. This means at the end of the note you will need to refinance.Again, your calculator will not lie to you.SBA financing usually will do a higher loan to value (LTV) than conventional financing and frequently with SBA you can finance good will or business value where many conventional lenders will only finance the actual real estate and machinery/equipment value.The disadvantages of SBA financing are the guarantee fee that you will be required to pay (which normally is 3.5% of the guaranteed portion of the loan, which is typically 75%) and it also can take longer for approval, but this typically is with banks and lenders that do not have a Preferred Lender status (PLP) but have to submit their transactions through local district offices. The interest rate you will pay will typically be higher than conventional financing.Other options are available. Stated Income financing is frequently available for this asset class, but the Loan To Values (LTV) are typically lower. You normally can not do larger loans (greater than $1,000,000)also. Most stated incomes program advertise that they will do 65% financing, but in reality it is closer to 55% because they do not lend against good will and frequently will only lend a portion against machinery and equipment. It is typically faster with minimal paperwork compared to something fully underwritten, but you also will pay at least a few points higher in rates and fees to obtain this type of financing.Private financing is also available for gas stations and convenience stores. Advantages are speed and minimal paperwork. Disadvantages are significantly higher rates, fees and lower LTV’s (typically 50-60% max).What is best for you all depends on your hot button. If all you are looking at is rate, conventional may be the best deal, assuming you have a bank or lender that will do it conventionally. If you are looking at minimal out of pocket, SBA is probably your best bet. Cost of funds can go down if the Loan To Value is higher. The return on your investment also goes up if you are spending less money out of pocket. If payment is your hot button, you’ll have to evaluate both options to see which is best for you. Conventional financing usually will have a shorter amortization period than SBA and frequently will have a higher payment. If the pre-payment penalty is the most important, SBA may or may not be the best option for you. SBA has a three year pre-payment penalty, 1st year 5%, 2nd year 3% and 3rd year 1%. Conventional pre-payment penalties will vary from bank to bank and lender to lender. Also look to see if the conventional loan is assumable as it may be easier to sell a site if the loan is assumable. Most SBA loans are assumable if there is a qualified borrower. If speed is your hot button, stated income or private financing is the way to go, but you probably will have a significantly lower LTV and will pay higher fees.If you haven’t figured it out by now, you can’t have it all, i.e. rate, fees, term, speed, pre-payment penalty. You can though most likely obtain a good loan if you are a qualified buyer. In all cases, presentation goes a long way to obtaining the best possible loan.

Is it actually possible to get ‘ creative ‘ when considering a franchise finance business loan for you new Canadian role as an entrepreneur in franchise financing? There are some tried and trusted rules we use in the franchise lending area, but a little creativity has never hurt anyone we believe!If you haven’t considered how to finance your new business in the franchise industry then we feel it’s probably a little too late in some ways, as your ability to finance your business properly we think has a lot to do with the ultimate growth and success of your business. There are very focused lending sources for the franchise area of financing in Canada – the trick of course is to know what they are and more importantly how you can navigate the ‘ maze ‘ successfully.The reality is that if you have some industry experience in your new business and a proper finance plan you have a much better chance of financing your business properly.So, who can you turn to in terms of creativity and resources for franchise financing? Clients are amazed when we tell them the most creative partner in franchise financing in Canada is none other than the Canadian government!How could that possibly be? Simply because a program guaranteed by the government and administered by the banks could not be any more creative than this.The program is the ‘BIL’ loan program, and it provides you with financing up to 350k for your new business. Are the terms onerous? Hardly! The essence of the program is a 5-7 year term loan, with great rates, limited personal guarantees, and some other elements of flexibility. If that isn’t creative then we don’t know what is!Naturally all the creativity in a business loan of that type for your franchise finance scenario should not be reliant on just one lender – the other lender is someone you know very well. Yourself. That’s simply because when you look at the total financing of a franchise in Canada the two components are simply debt (the funds you have borrowed) and the equity, or money you have put in yourself. These equity funds, i.e. your commitment to the business, typical come from savings, the proverbial ‘ friends and family ‘ support, and investments or collateral that you have available.Getting back to our key subject of creativity, our above noted BIL loan program only covers certain aspects of a franchise finance scenario. You can augment that loan with flexible equipment financing that has low down payments and extended amortization terms, as well as, in some cases, a working capital term loan.We never forget to remind clients that the franchise financing plan is a two stage process, acquiring the business, and making sure they have some capital and funding to operate and grow their new business.In summary, you can be creative when you are looking for info on how Canadian franchise finance works. You need knowledge on what funding sources are available that are specialized to the franchise industry, and assistance in executing a proper financial plan. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in maximizing that creativity!