A loan for your franchise: what to agree before signing

Choosing a brand and passing its selection process does not mean you have secured the money to start trading. When you join a franchise network, you remain an independent business owner responsible for your own liabilities. If buying a franchise depends on a loan, you need to align three things before signing the agreement: your investment budget, the bank’s terms and your commitments to the network. The biggest risk is finding yourself with fees already due but no funding in place.

1. Establish exactly what the loan needs to cover

Start with a list of expenses and when they fall due, rather than asking how much you can borrow. Separate the costs of opening the outlet from the money needed for day-to-day operations. The initial franchise fee, fitting out the premises and buying equipment are different types of expenditure from wages, social security contributions, rent and replenishing stock.

Prepare a table with four details for each expense:

• the amount payable, showing figures both excluding and including VAT;
• the payment deadline specified in the agreement or quotation;
• the source of funds: your own money, a loan or other financing;
• the documentation required for the funds to be released.

Do not assume the bank will finance every item in your budget. Ask specifically about the franchise fee, deposits, VAT, second-hand equipment and expenses incurred before the loan agreement is signed. The rules depend on the product and the lender’s decision.

Your own contribution and your operating cash reserve are not the same thing. If you put all your savings towards the contribution required by the bank, you may not have enough left to cover the first bills. Calculate your reserve using a schedule of actual cash inflows and outflows, including loan repayments and your own basic living costs.

2. Check the conditions for releasing funds, not just the interest rate

An initial conversation with an adviser, an illustrative repayment calculation or an expression of interest is not the same as an unconditional commitment by the bank to release funds. Ask what stage your application has reached, what still needs to be assessed and how long the proposed terms remain valid.

The bank may require specific documents, security for the loan or evidence that you have paid your own contribution. Establish whether the money will be paid into your account or directly to suppliers, and whether it will be released in one payment or in stages. Align this with the payment deadlines agreed with the franchise network.

When comparing offers, look beyond the interest rate to arrangement fees, the cost of providing security, insurance, fees on undrawn funds and early repayment terms. If there is a repayment grace period, check whether it applies only to the principal. A grace period does not necessarily mean there are no payments to make.

Prepare a scenario with lower cash inflows after opening, too. This is not about reassessing the brand’s appeal, but about answering a specific question: after meeting your day-to-day commitments, will there be enough cash to service the debt? A loan does not remove business risk; it merely spreads some expenditure over time.

3. Make your commitments to the network conditional on financing

Under Polish law, a franchise agreement is an ‘unnamed contract’, meaning it is not a separately defined statutory contract type. There is no separate franchise act or general franchise-specific requirement to provide a statutory disclosure document within a set period before signing. The general provisions of the Polish Civil Code are central, including freedom of contract and liability for failure to fulfil contractual obligations. Depending on the circumstances, competition, intellectual property and tax rules also apply. Bank lending itself is governed by, among other legislation, Poland’s Banking Law.

A loan refusal does not, in itself, automatically entitle you to withdraw from a franchise agreement without cost. Before signing, therefore, work with a lawyer to agree a mechanism that makes specified obligations conditional on securing finance, or a contractual right to withdraw that can be exercised within a defined period.

Such a clause should specify:

• what financing will be sufficient, including the minimum amount;
• the deadline for obtaining a lending decision and meeting the conditions for releasing funds;
• how to document a refusal or failure to secure financing;
• what happens to payments already made and costs already incurred;
• the form and deadlines for submitting any required notices.

Simply stating that ‘the purchase will be financed by a loan’ does not resolve these issues. You also need to establish whether you can hold off commissioning work and ordering equipment until financing is confirmed.

4. Check any financing offer recommended by the network

The franchisor may suggest a bank, a broker or a financing option available to prospective franchisees. Treat that recommendation as a starting point, not a guarantee of loan approval or confirmation that the terms are the best available.

Ask who actually provides the finance, who receives any brokerage fees and whether you are free to choose another lender. If the network offers to contribute towards borrowing costs, request the rules in writing: how long the support lasts, the conditions for retaining it and any requirement to repay it.

Before making your final decision, review the loan agreement alongside the franchise agreement. In particular, check whether ending your relationship with the brand affects the continued availability of financing. Do not assume that closing the outlet ends your obligation to repay the debt.

The practical takeaway: do not take on unconditional commitments based solely on a promise of finance. First confirm what the funding covers, the conditions for releasing it and the contractual arrangements that will apply if your application is refused.