Franchises in Guatemala: arrange your finance before signing

Buying a franchise with borrowed funds means coordinating two separate commitments: the agreement with the franchisor and the loan that will fund the investment. If you sign the first without securing the second, you could be obliged to pay even if the money never arrives. If you are looking to enter Guatemala’s franchise market, negotiate how these commitments will work together before accepting binding obligations.

1. Distinguish a loan offer from available funds

A positive conversation with a lender does not mean funds are available. Ask for written confirmation of the stage your application has reached and any outstanding requirements. Approval may depend on documents, security or other conditions you need to understand before committing to the franchisor.

Organise the process around three milestones: assessment of the application, documented approval and release of funds. Ask which document confirms each stage and whether the approval has an expiry date.

Prepare a checklist to compare the loan with the investment required:

• The amount requested and the amount actually approved.
• Your required contribution and when you must provide evidence of it.
• Costs that can be financed and those that are excluded.
• Documents required to release the funds.
• Who will receive the funds: your company, the franchisor or specified suppliers.

Do not treat the approved amount as cash available to spend. What matters is knowing how much you will receive, when and on what conditions.

2. Negotiate a financing condition

Guatemala has no specific franchise law comprehensively governing these agreements. The general provisions of the Commercial Code apply, supplemented by the Civil Code where necessary. The Industrial Property Law, Decree 57-2000, regulates matters such as trade marks and their licensing, but does not provide specific protection for buyers who cannot secure finance for the purchase.

Nor is there a specific franchise pre-contractual disclosure regime that removes the need for this negotiation. Do not assume you will have an automatic period in which to cancel the transaction if the bank rejects your application.

Ask a Guatemalan lawyer to assess how to make the agreement taking effect, or particular payment obligations, conditional on securing finance. The wording should specify what happens while the condition remains outstanding and what happens if it is not met.

You should define:

• The minimum loan amount needed to proceed.
• The deadline for providing evidence of approval or release of funds.
• The documents you must submit as evidence.
• The steps you undertake to take in good faith.
• The consequences of a refusal or approval for an insufficient amount.

These are terms you must negotiate, not automatic franchisee rights. Avoid a vague reference to ‘securing finance’: approval for only part of the amount could leave you unable to complete the investment.

3. Align the release of funds with purchase payments

Draw up a single timetable showing the payments required by the franchisor and the expected dates for receiving the loan funds. Include every payment needed to complete the purchase, even those payable to third parties.

The aim is to identify circular dependencies. For example, the lender might require a signed agreement to complete its assessment, while the franchisor requires payment on signing. Before taking on that commitment, ask what alternative documentation the lender will accept and what conditional arrangement the franchisor will agree to.

There is no universal solution: you might negotiate a conditional signing arrangement or a staged payment schedule, subject to agreement and legal review.

Also clarify what happens if the loan is approved within the deadline but the release of funds is delayed. Approval and release of funds must not be treated as the same event. Specify how any delay will be notified and whether an extension will be agreed.

4. Check that you can afford the loan and complete the transaction

Before accepting the loan, ask for a written explanation of interest, fees, linked insurance, security requirements, repayment dates and early repayment terms. Compare offers on a like-for-like basis: net cash received, the full repayment schedule and the total cost under the terms offered.

Review with your accountant whether the business could service the debt if sales fall below expectations. The franchisor’s sales forecast is neither a guarantee of income nor a substitute for your own financial assessment.

Finally, cross-check the loan and franchise documents. Make sure they are consistent about the borrower, the buyer, the authorised use of the funds and the critical dates. Resolve any discrepancies before signing; do not assume they can be corrected later.

Practical action: take a sheet with three columns to the negotiations: loan condition, obligation to the franchisor and solution if the two do not align. Do not make an irreversible commitment while that coordination remains unresolved.