Buying a franchise: arranging finance in Portugal

Choosing a brand does not mean you have secured funding for the investment. Before making commitments, prospective franchisees should understand how much capital they need, when it will be available and on what terms they will have to repay it. In franchising, a partnership with a bank may help establish contact, but it does not replace a credit assessment or guarantee approval. This guide explains how to prepare for that decision without confusing joining a franchise network with securing finance.

1. Define what you need to finance and when

Your loan application should start with a breakdown of funding needs, not just the investment figure advertised by the brand. Separate set-up costs from operating requirements: they will not all suit the same banking product or qualify as eligible expenditure.

Organise your breakdown into four categories:

• Set-up: fit-out works, equipment, furniture and IT systems.
• Joining and preparation: the initial franchise fee, professional services and pre-opening expenses.
• Starting operations: initial stock, wages, insurance, energy and other cash outflows until sufficient income comes in.
• Contingency reserve: money to cover delays, additional costs and a slower start to trading.

For each payment, identify the recipient, the due date and whether it can be deferred. Confirm the VAT treatment with a certified accountant in Portugal: being able to reclaim VAT does not necessarily remove the need to pay it before recovering it.

Next, separate your own funds that are genuinely available from finance that has yet to be approved. Money set aside for personal expenses should not also be counted as business funding. A balanced plan must protect both the company's cash flow and the investor's financial sustainability.

2. Prepare a loan application supported by evidence

The bank assesses the repayment capacity of both the applicant and the business, not just the brand's reputation. Ask for a written list of the documents required and confirm who will be the borrower: the entrepreneur personally or the company that will operate the outlet.

The application may require identification details for the people behind the venture, their professional experience, the source of their own funds, tax and financial information, investment cost estimates and the company's financial statements, where available. Include the draft franchise agreement and a realistic opening schedule.

Distinguish information supplied by the brand from commitments made by third parties. An equipment quotation is not a loan offer; an indicative loan calculation from a bank is not final approval. Record the date, assumptions and validity period of each document.

If the franchisor advertises an arrangement with a bank, ask:

• What specific terms does it offer?
• Is approval still subject to the bank's individual assessment?
• Which expenses can be financed, and which are excluded?
• Are there additional conditions for releasing the funds?

For public funding schemes, check the relevant call for applications and the body responsible. Do not count on incentives until you have confirmed eligibility, approval and the payment timetable. Some schemes reimburse expenditure, so you need funds available to pay the costs upfront.

3. Compare loans beyond the monthly repayment

A low initial repayment may conceal a long term, additional charges or a grace period that merely postpones repayment of the principal. Compare offers for the same amount and drawdown schedule.

Ask for a breakdown of the interest rate, the reference rate and margin where applicable, fees, taxes and any required associated products. Also request a repayment schedule and clarify the costs of early repayment, contractual changes and default.

Pay particular attention to:

• Grace period: whether it covers principal only or interest as well, and how payments change afterwards.
• Release of funds: whether the money is paid out in one go or in instalments, against invoices or other evidence.
• Drawdown period: the deadline for accessing the approved amount.
• Obligations during the loan: regular reporting, maintaining specified financial ratios or restrictions on further borrowing.

Do not treat a revolving credit facility as guaranteed permanent funding. A review or decision not to renew it could coincide with a period of greater cash needs. Ask your accountant to assess the combined impact of loan repayments and the outlet's other obligations.

4. Align loan approval with the franchise agreement

Portugal has no specific franchising law or mandatory pre-contractual disclosure regime prescribing a particular document and disclosure period. Relevant rules include the principle of freedom of contract under Article 405 of the Portuguese Civil Code and the duties of good faith under Articles 227 and 762. Decree-Law No. 446/85 on standard contractual terms may apply to clauses drafted in advance without individual negotiation.

A loan refusal does not automatically cancel the franchise agreement. Before signing, seek legal advice and negotiate a condition that expressly addresses obtaining finance. Define the minimum amount, deadline, evidence of the bank's decision and the consequences of refusal, partial approval or approval on terms different from those anticipated.

Also confirm when the bank can actually release the funds. Approval is not the same as availability: documents may still be outstanding, or other contractual conditions may remain unmet.

Practical conclusion: proceed only when your payment schedule, loan offer and franchise agreement are compatible. The aim is not to secure just any financing, but to ensure that funds are available at the right time and that the business can afford the resulting obligations.