Buying a franchise: making your commitment conditional on finance

Choosing a franchise brand does not mean you have secured the loan to fund your investment. If you sign unconditionally before the bank has completed its assessment, you may take on obligations you cannot finance. Before entering the franchise market, consider a specific safeguard: a contractual clause that makes your commitment conditional on securing suitable finance.

Distinguish discussions with the bank from funds actually being available

A positive initial discussion with a bank is not the same as final approval. Even an approval may come with conditions, such as providing documents, proving your own financial contribution or putting up security. The key question is not simply ‘Will I get a loan?’ but ‘When, and on what terms, will I be able to use the money?’

Ask the lender to confirm in writing the stage your application has reached and any outstanding requirements. In particular, check whether the release of funds requires a signed franchise agreement, a lease, equipment invoices or a prior contribution from your own funds. This will help you identify a potential catch-22: the bank may be waiting for commitments you cannot make without finance.

Also establish whether the funds will be released in one payment or in instalments, and whether they will be paid to you or directly to suppliers. An approved loan amount will not necessarily cover every payment when it falls due.

What the Greek legal framework allows

Greece has no specific law comprehensively governing franchise agreements. These are governed primarily by the general provisions of the Greek Civil Code on contracts and obligations, together with other rules applicable to the particular relationship. Freedom of contract allows the parties to agree clauses that make specified effects of the agreement dependent on a future, uncertain event, such as securing finance.

There is also no specific, legally mandatory pre-contractual disclosure document for franchising, nor a statutory minimum waiting period before signing. General duties of good faith during negotiations, particularly under Articles 197 and 198 of the Greek Civil Code, remain important. They do not, however, create an automatic right to withdraw if the bank rejects your application.

A loan rejection should not, in itself, be treated as cancelling the agreement. You need an express agreement setting out what happens in that situation. Your lawyer should select the appropriate mechanism: for example, deferring the point at which specified obligations take effect until approval is obtained, or agreeing a right to withdraw if it is not.

Define what ‘secured finance’ means

A broad phrase such as ‘the agreement is subject to finance’ leaves many questions unanswered. Ask for a clause tailored to your investment, with clear answers to the following:

• Amount and purpose: What is the minimum amount required, and which costs must it be available to cover?
• Acceptable financial terms: What loan term, borrowing costs and contribution from your own funds are compatible with your plan?
• Security: Are there any security requirements from the bank that you are unwilling to accept?
• Approval stage: Is a final lending decision sufficient, or must the conditions for releasing the funds also have been met?
• Deadline and evidence: By when must the process be completed, and what document will establish the outcome?

The agreement should also set out your own obligations to cooperate: submitting a complete application on time, providing accurate information and keeping the other party informed of progress. It is not safe to rely on a vague provision allowing you simply to state that ‘no loan was available’.

Also clarify what happens if the bank approves only part of the amount, delays its decision or offers different terms. Any extension needs a defined procedure and written confirmation, rather than an assumption that everyone will wait.

Align the agreement with your other commitments

A properly drafted clause in the franchise agreement does not automatically bind the landlord, building contractor or equipment supplier. If those separate agreements remain unconditional, you may still owe money even if the franchise relationship never takes effect.

Draw up a simple table listing each agreement, its payment dates, the conditions for obligations to take effect and any scope for deferral. With your lawyer and accountant, check which commitments arise before finance is secured and whether they need equivalent protection. Also specify which payments are refundable, which documented expenses remain payable and when the matter will be finally settled.

Finally, do not accept an opening date that assumes the immediate release of funds unless this has been secured. Tie the preparation schedule to realistic, verifiable milestones.

Practical takeaway: Before signing, agree exactly what counts as sufficient finance, when it must be secured and what happens if it is not. Optimism from the bank is no substitute for a clear contractual clause.