Buying a franchise in Belgium: agree a financing condition

A meeting with a bank is not a commitment to lend. When buying a franchise, you may become contractually bound before your funding is finalised. Both parties to a franchise arrangement need clarity about this risk. A carefully drafted financing condition can help prevent you from having to start trading, make payments or pay damages when the necessary credit is unavailable.

1. Distinguish interest from a binding loan offer

A bank may respond positively to your business plan without committing to provide funding. An illustrative calculation, agreement in principle or verbal confirmation will often still be subject to conditions. These might include your own capital contribution, additional supporting documents, a valuation of the collateral or approval by a credit committee.

Ask the bank to confirm in writing which steps remain outstanding. Also check whether you will actually be able to draw down the loan when your first invoices fall due. An approved loan whose release depends on missing documents does not solve your payment problem.

Keep track of three distinct stages:

• Exploratory: the bank is discussing possible funding but has made no commitment.
• Conditionally approved: an offer has been made, but you still need to meet specific conditions.
• Available: the required documents and security arrangements are in place, and funds can be drawn down according to the agreed timetable.

Ask the franchisor which stage they expect you to have reached before signing. If the franchisor requires you to sign first, while the bank requires a franchise agreement before approving funding, this need not lead to a stalemate. A financing condition that suspends contractual obligations until funding is secured can help manage that sequence.

2. Understand what Belgian law does and does not protect

Belgium has no separate law governing every aspect of the performance of franchise agreements. However, Title 2 of Book X of the Belgian Code of Economic Law (WER) contains specific rules on pre-contractual information for commercial cooperation agreements, including franchises.

Under Article X.27 of the WER, you must receive the draft agreement and the pre-contractual information document at least one month before entering into the agreement. During this protected period, as a rule, no commitments may be entered into and no fee, sum or security deposit may be requested or paid. There are statutory exceptions, including for confidentiality arrangements and certain obligations under existing agreements.

A financing condition does not replace this waiting period. Do not assume that you can safely sign during that month simply because the contract is conditional on bank funding.

Equally, once the statutory period has expired, you do not automatically have the right to withdraw later without cost if a bank refuses your application. You need an appropriate contractual provision for that. The general law of obligations, particularly Book 5 of the Belgian Civil Code, provides the legal framework. Rules on unfair terms between businesses may also be relevant, but they do not offer a standard way out when a loan is refused.

3. Make the financing condition measurable

A phrase such as ‘subject to financing’ leaves too many questions unanswered. How much must be borrowed? On what terms? And how long can the uncertainty continue? Ask a Belgian lawyer to draft a tailored clause that reflects the lending process.

Set out at least the following:

• The funding required: specify the minimum amount and, where relevant, separate investment and working capital facilities.
• Acceptable lending terms: define, for example, the maximum interest rate or total borrowing costs, the minimum loan term and the permitted security requirements. Use objectively verifiable limits.
• The deadline: allow a realistic period for the bank’s assessment and specify how the parties may agree an extension.
• Your obligation to pursue funding: agree when you will submit a complete application, which lenders you will approach and what follow-up is expected.
• The evidence: specify which written bank documents will be sufficient to demonstrate approval or refusal.
• The consequences: describe what happens if funding is not secured in time, including how any amounts already paid and costs incurred will be treated.

Also make sure the clause explicitly states which obligations are suspended. You do not want the commencement date to take effect, or an obligation to pay or open premises to become enforceable, while you are still waiting for the lending decision.

A condition is not an unrestricted escape route. Submit your application on time and provide accurate information. If you prevent the condition from being fulfilled yourself, you cannot necessarily rely on the absence of funding to withdraw.

4. Align all commitments with the same deadline

The franchise agreement is rarely your only commitment. You may also sign an equipment order, a training agreement or a contract for refurbishment work. A financing condition in the franchise agreement does not automatically protect you in your dealings with those other contracting parties.

Make a simple list showing, for each document, the signing date, the amount payable, the cancellation terms and any separate financing condition. Where possible, postpone orders that cannot be cancelled. If something must be agreed earlier, negotiate its terms separately.

Keep loan applications, acknowledgements of receipt and decisions together in one file. Report any delay before the contractual deadline and request an extension in writing. Ongoing discussions with the bank do not automatically extend your deadline.

Practical conclusion: sign only after the statutory waiting period, and then only with either funding available or a carefully tailored condition suspending the relevant obligations until funding is secured. Before signing, have the bank, your lawyer and the franchisor confirm the same amounts, deadlines and consequences.