Buying a franchise: how to assess a loan in Argentina

A loan can help you buy a franchise, but it also creates repayment obligations even before the business starts making sales. In franchising, a well-known brand is no substitute for assessing your ability to repay. Before taking on debt, check whether the money will be available when you need it and whether the business can repay it without relying on optimistic sales forecasts.

1. Separate the investment required from the amount you can borrow

Your opening budget and a loan offer answer different questions. The first shows how much you need; the second sets out how much you can borrow, when you will receive it and on what terms. Do not assume the two amounts will match.

Prepare a schedule covering every payment needed to get the business up and running. Then identify which costs the lender will finance and which you will need to cover with your own funds. Some loan products require quotations, invoices or specific uses for the funds: check the actual offer.

Ask for a written offer covering:

• Net funds available: how much you will actually receive after any upfront deductions.
• Disbursement date and conditions: which documents or approvals are still outstanding.
• Repayment schedule: when repayments begin and how long they continue.
• Permitted use: which expenses you can pay with the funds.
• Required security and guarantees: which assets or commitments will back the debt.

If the loan is released only against evidence of expenses already incurred, you will need money to cover them upfront. This funding gap could prevent the purchase from going ahead, even if the approved amount appears sufficient.

2. Test the repayments against business information

In Argentina, franchising is specifically regulated by Articles 1512 to 1524 of the Argentine Civil and Commercial Code. Article 1514(a) requires the franchisor, before signing, to provide economic and financial information covering two years of performance at units similar to the one being offered, which have operated for a sufficient period, either in Argentina or abroad.

This information helps you test your assumptions, but does not guarantee future sales or loan approval. Nor does it replace the terms of the finance agreement, which need a separate review.

With an accountant’s help, turn the available historical information into a monthly cash-flow forecast for your unit. Allow for differences in location, size, staffing and how long the business has been operating: an established outlet may perform differently from a new opening.

Calculate the cash remaining after operating expenses, taxes and any planned personal drawings. Then factor in the full loan repayments. Do not confuse accounting profit with available cash: payment for a recorded sale may arrive after a loan repayment falls due.

Repeat the exercise with lower sales and a slower opening process. If you can only meet repayments in the favourable scenario, the financing needs adjusting.

3. Compare the full cost and the guarantees

Do not choose a loan based on its initial repayment or advertised interest rate. Ask for the total financing cost (costo financiero total), an itemised breakdown of charges and the repayment schedule. Review fees, compulsory insurance, applicable taxes and costs associated with security or guarantees, checking which items are included in each figure.

To compare offers, use the same net amount received and an equivalent loan term. A lower repayment may reflect a longer repayment period and ultimately increase the total amount you pay.

Also ask:

• Is the interest rate fixed or variable? If it changes, what benchmark and adjustment mechanism apply?
• Does the grace period defer only principal repayments, or interest as well?
• Is interest accrued during the grace period added to the outstanding balance?
• Are there early repayment charges?
• What happens if a payment is late, and when can the lender demand repayment of the outstanding balance?

Seek legal advice before giving personal guarantees or pledging assets as security. Do not assume that borrowing through a company automatically protects your personal assets if you also sign as a guarantor. Establish who is liable, for how much and for how long.

4. Coordinate the loan with the franchise agreement

Pre-approval does not necessarily mean funds are available. Before committing to payments you cannot cancel, check which requirements remain outstanding and how long the offered terms will remain valid.

If the purchase depends on the loan, agree in writing how signing the franchise agreement and releasing the funds will be coordinated. Do not assume that a lender’s refusal releases you from commitments made to the franchisor.

If the brand recommends a lender or includes financing in its offer, find out who is actually lending the money, who collects the repayments and which contracts you will sign. A commercial recommendation is no substitute for an independent assessment.

Also review what would happen if the franchise stopped operating before the loan was repaid. Do not assume that closure wipes out the debt: check which obligations would remain in force.

Practical conclusion: proceed when you have a written offer, a forecast that can withstand adverse scenarios and a clear understanding of the scope of any security or guarantees. The loan must fit the business’s cash flow, not simply fill a gap in the purchase budget.