Buying a Franchise in Saudi Arabia: How Can You Make Signing Conditional on Finance?

You may find the right brand and receive approval in principle from a finance provider, only to discover that releasing the funds requires documents or guarantees you had not anticipated. The risk is not simply that finance is refused, but that your commitment to buy the franchise remains binding even though the money is unavailable. In the Saudi franchise market, carefully coordinating finance approval, signing and payments can help protect your purchase decision, without assuming that the franchisor or finance provider automatically bears the risks associated with the other party.

Distinguish between application approval and a commitment to release funds

Being told that you are ‘eligible for finance’ does not necessarily mean the money is available. Ask the finance provider for a written statement identifying the stage your application has reached: is it an initial assessment, conditional approval, or a finance agreement awaiting fulfilment of the conditions for releasing funds? Check how long the offer remains valid, as it may need to be reassessed if it expires before the franchise arrangements are complete.

Prepare a list of outstanding conditions, identifying who is responsible for each one and when it must be met. Requirements may include company documents, your own financial contribution, fit-out quotations or the franchise agreement. This is not a standard statutory checklist: requirements vary according to the provider, the finance product and the applicant’s circumstances.

Also ask how the funds will be released. Will they go into the business bank account, or be paid directly to suppliers? Will the finance cover the initial franchise fee, or only specific assets? Finance earmarked for equipment will not solve the problem of a payment due to the franchisor if its terms prohibit that use.

You can also explore the franchise finance facilitation service offered by the Franchise Centre at Monsha’at, Saudi Arabia’s Small and Medium Enterprises General Authority, while checking its current terms. The availability of a facilitation service does not guarantee approval or commit any particular provider to financing your business.

Get the legal sequence right before making any payment

Franchise agreements performed within Saudi Arabia are subject to the Commercial Franchise Law, issued under Royal Decree No. M/22, and its Implementing Regulations. One important rule requires the franchisor to provide the disclosure document at least 14 days before the franchise agreement is concluded or any franchise-related payment is made, whichever comes first.

Do not therefore assume that calling a payment an ‘opportunity reservation fee’ or a ‘good-faith deposit’ automatically puts it outside this rule. Ask your adviser to review the nature of the payment and its connection to the grant of the franchise before transferring it. The disclosure period provides time for assessment; it is neither finance approval nor a guarantee that every subsequent payment will be refundable.

Create a timetable showing when you received the disclosure document, when the statutory waiting period ends, when the finance offer expires, the proposed signing date and the payment deadlines. If the finance provider requires a signed agreement before granting final approval, while the franchisor requires a non-refundable payment on signing, you have a contractual gap that needs a written solution—not a verbal promise to sort things out later.

Nor should you treat registration of the agreement or completion of franchise formalities as an endorsement of the business’s viability or confirmation of your ability to borrow. Each procedure serves a different purpose.

Negotiate a workable finance condition

A finance condition is a proposed contractual arrangement, not an automatic right to withdraw from any agreement if a loan is refused. Its purpose is to establish what happens if you cannot obtain suitable finance within a specified period. Have a lawyer draft it and check that it is consistent with the rest of the agreement and its schedules.

The condition should clearly answer the following questions:

• What finance is required? Specify the minimum amount, its purpose and the key acceptable parameters for cost and security, rather than simply referring to ‘finance’.
• What counts as evidence of approval? State whether conditional approval is sufficient or whether specified conditions for releasing the funds must also be met.
• What must you do? Agree to submit a complete application and cooperate in good faith, with a way to document both the application and its outcome.
• When does the deadline expire? Set a final date and a written procedure for extending it if the decision is delayed.
• What happens if suitable finance cannot be obtained? Specify how the relationship can be terminated or the relevant obligations prevented from taking effect, what happens to each payment, when refunds must be made and any agreed deductions.

In particular, distinguish between making the agreement’s effectiveness conditional on finance and merely deferring a particular payment. A clause may postpone payment while leaving other obligations in force. Review separate fit-out and equipment orders too: a finance condition in the franchise agreement does not automatically cancel a contract you have entered into with a supplier.

Review guarantees and your exit options before committing

Compare the identity of the borrower with that of the franchisee and the party responsible for paying the fees. If a company will operate the business but the finance is in your personal name, have the legal and accounting implications reviewed before proceeding. Do not assume that forming a limited liability company protects you from a personal obligation you have signed separately.

Examine any guarantee, promissory note or security required: who is the beneficiary, which obligation does it secure, and when will it be released? Pay particular attention to whether you may be asked to provide guarantees to both the franchisor and the finance provider, and how each would be affected if the business ceased operating.

Before making your final decision, prepare a one-page comparison of three scenarios: finance on the required terms, a smaller amount of finance or stricter security requirements, and refusal of finance. For each scenario, write down what the contract allows, what you would have to pay and what you could recover. This comparison will reveal whether you have a genuine exit option or are merely postponing the problem.

Practical takeaway: Do not sign on the strength of finance approval in principle. Obtain the conditions for releasing funds in writing, link them to a clear contractual mechanism, and establish what happens to payments and guarantees before they become binding.