Financing a Franchise in Belarus: What to Check Before You Buy

Buying a franchise with a loan means coordinating two separate transactions: borrowing from a bank and acquiring rights from a franchisor. Membership of a franchising community does not guarantee loan approval or remove the obligation to repay the debt. Before signing any documents, check that the financing terms match the costs and commitments of your chosen franchise.

1. Find out which costs the bank will finance

Do not start by asking, ‘Can I get a loan for a franchise?’ First, list the specific costs: the initial franchise fee, equipment, refurbishment, stock, rent and software. Then ask the bank to confirm in writing which items are eligible under the chosen loan product and what documents it requires to verify that the funds have been used for their stated purpose.

Do not automatically assume that an equipment loan will cover the entire franchise package. The bank may agree to finance the purchase of assets but exclude fees for the grant of franchise rights or day-to-day expenses. Clarify this before promising the franchisor that you will pay for the full package.

For each budget item, specify:

• the payment recipient and the basis for payment;
• the payment deadline in the draft agreement;
• the intended funding source: a loan or your own funds;
• the documents the bank will require;
• whether payment can be deferred without penalties.

If the seller offers a single price without a breakdown, ask them to explain what the package includes. The bank needs to understand the purpose of the payment, and you need to know which costs the loan will not cover. Any breakdown must reflect the substance of the transaction, rather than being artificially adjusted to meet the financing terms.

2. Prepare the legal groundwork for your application

In Belarus, franchising is specifically regulated by Chapter 53 of the Civil Code, entitled ‘Comprehensive Business Licence (Franchising)’. There is no separate franchising act, but this does not mean that no specific rules apply. Article 910 defines the agreement, while Article 910-1 requires it to be in writing and registered with the patent authority — the National Centre of Intellectual Property. An unregistered agreement is deemed invalid.

The registration procedure is governed, among other provisions, by Resolution No. 346 of the Council of Ministers of the Republic of Belarus, dated 21 March 2009. Registering the agreement does not replace the bank’s assessment of the borrower or confirm that the future outlet will be profitable.

Give the bank a draft agreement and ask when it will need the registered document: when assessing the application or before releasing the funds. At the same time, establish whether the franchisor is willing to enter into the agreement before the loan funds are received, and when the obligation to pay arises.

Ask a lawyer to review the loan agreement, franchise agreement and payment schedules together. The key question is whether a fee could become due before you are able to meet the conditions for the loan to be released. Do not substitute a manager’s verbal assurance that the bank ‘usually approves everything’ for this review.

3. Assess your obligations, not just the interest rate

Request a repayment calculation tailored to your circumstances and a full list of borrowing costs. As well as interest, check any fees specified in the terms, the costs of valuing and insuring security where required, and the early repayment rules. Do not treat the advertised interest rate as the final cost of financing.

Examine the security requirements separately. Which assets would you need to pledge? Is a personal guarantee from the business owner required? What obligations would the guarantor take on, and in what circumstances could the bank call on the guarantee? Ask for an explanation based on specific clauses in the documents, rather than a general statement that this is ‘standard banking practice’.

Do not assume that the right to trade under a brand can be pledged to the bank on the same terms as equipment. Whether particular rights can be used as security requires a separate legal assessment. The brand and the network’s business reputation are not, in themselves, assets owned by the franchise buyer.

Compare the repayment schedule with the outlet’s expected cash receipts. If there is a grace period for repaying the principal, establish whether interest accrues during that period and when it must be paid. A grace period does not necessarily mean there are no payments to make.

4. Agree what happens if the loan is refused or delayed

Preliminary discussions about an application do not oblige the bank to lend. During negotiations, therefore, propose a process with the franchisor for dealing with a refusal, a reduced loan amount or a delay in funding.

The written terms should establish:

• the deadline for the buyer to obtain the bank’s decision;
• which payments may be made before that decision;
• whether payment can be deferred or the buyer can withdraw from the transaction;
• which sums will be refunded and which documented costs may be deducted;
• how the parties will formalise any changes to their agreement.

These points are negotiable; the buyer does not automatically have a right to a refund of every payment. A lawyer should check how the proposed arrangement fits with entering into and registering the franchise agreement.

Be particularly cautious about offers requiring immediate payment to reserve a territory in exchange for a discount. If the payment is non-refundable and the loan has not yet been approved, the buyer effectively bears the risk of the bank refusing to lend.

5. Verify the financing before making your final decision

If you are offered a preferential or partner lending scheme, check its current terms directly with the bank. An old scheme description, a brand presentation or a franchise’s inclusion in a directory does not prove that funding is available to a particular applicant.

Before signing, compile a single table showing each cost, its deadline, its funding source, the conditions for releasing the funds and the consequences of a delay. Discuss all unresolved items with the bank and the franchisor. Do not count any amount as confirmed funding while conditions for its release remain unmet.

The practical takeaway: buying a franchise with a loan is sensible only once three points have been agreed: exactly what the bank will finance, when payments to the franchisor become due, and who bears the losses if the money does not arrive on time.