Preparing a Franchise Brand for Finance in Saudi Arabia Before Granting Franchises

Your existing business may be ready to grant franchises yet fail to meet the requirements of the finance scheme a prospective franchisee is relying on to open their outlet. This distinction deserves attention before you market the opportunity: finance is not a promise the franchisor can make, but a decision taken by an independent organisation. In Saudi Arabia’s franchise market, preparing a clear finance information pack for the brand helps reduce confusion and prevents expansion plans from depending on funds that have not yet been approved.

Separate eligibility to grant franchises from eligibility for finance

Franchising in Saudi Arabia is governed by the Commercial Franchise Law and its Implementing Regulations. Article 5 of the Law states that a franchise opportunity may not be offered or granted until the franchise business has operated under its business model for at least one year, by at least two persons or at two different outlets. One of those persons may be the franchisor or a member of its group.

This is a legal requirement for offering and granting franchises, not confirmation of eligibility for finance. A lender’s criteria may impose different requirements relating to the brand’s operating history, the number of outlets, the characteristics of the applicant business and the nature of the project.

For example, the Social Development Bank’s franchise finance FAQs list brand requirements including at least two years of operation, a minimum of two outlets and fulfilment of the bank’s qualification requirements for approval. The bank also states that the applicant business must be wholly Saudi-owned under its approved policies, and that the applicant must pass a personal interview.

Do not present these requirements as universal conditions for all franchises in Saudi Arabia. Instead, create two separate checklists: one for legal compliance and another for the chosen finance scheme’s requirements. Review the published criteria at the time of application; meeting one set does not remove the need to meet the other.

Prepare a brand information pack that can be assessed

A useful pack for a lender is not a promotional presentation filled with photographs of outlets. It is an organised set of documents that helps the lender understand the existing business, its history and what the franchisor will provide to the franchisee. According to the bank’s FAQs, applications to add a new brand can be submitted through the Dulani portal. Starting that process, however, does not mean the brand has been approved.

Before contacting the lender, prepare a core information pack internally that includes:

• Details of the franchisor entity and its relationship with the brand, supported by relevant ownership or right-to-use documents.
• A record of outlets and their opening dates, supported by verifiable documents.
• A description of the outlet model to be financed and the products or services it will offer.
• A breakdown of set-up costs, distinguishing supplier quotations from preliminary estimates.
• A statement of the fees payable to the franchisor and the training, fit-out or support they cover.
• Available actual performance data for existing outlets, specifying the periods and circumstances to which the figures relate.

This is a suggested organisational checklist, not a substitute for the lender’s document requirements. Request the official requirements, then appoint someone within your business to keep the pack up to date and respond to enquiries. Ideally, each document should carry its issue date and the name of the person responsible for it, so that conflicting versions are not sent to different prospective franchisees.

Check that the finance is suitable before making operational commitments

It is not enough for a scheme to be aimed at franchising; it must also suit the business activity and the project’s stage at the time of application. The bank explains that certain activities are excluded from finance and states that applications cannot be made for a franchise project already under construction. You should therefore clarify which project stages are acceptable before starting fit-out work or making commitments that are difficult to reverse.

Ask the prospective franchisee to check the following directly with the lender: Is the business activity eligible? At what stage can an application be submitted? Which expenses can be financed? What documents are required from the franchisor and the finance applicant? Do not infer the answers from another applicant’s experience; the circumstances or applicable requirements may differ.

Next, draw up a written sequence of steps, identifying the checks needed before proceeding with leasing, fit-out and purchasing. If the lender requires a contractual document at an early stage, ask a legal adviser to structure the obligations linked to the finance decision. Do not assume that applying for finance automatically suspends contractual obligations.

Also test the scenario in which the approved amount is lower than requested. Can the prospective franchisee cover the shortfall from documented resources? Will the outlet model remain viable without removing essential equipment or fit-out elements? The aim is not to change the brand’s standards to close the deal, but to establish whether the project can actually be delivered as described.

Define the franchisor’s role and the limits of its promises

Set a clear rule for your franchise development team: they may explain the application process and provide brand documents, but they must not guarantee approval, the amount of finance or the disbursement date. In your correspondence, distinguish between submitting the brand for qualification, securing its approval under a particular scheme, approval of the prospective franchisee’s application and disbursement of funds. These are separate stages.

Do not let preparation of the finance pack replace statutory franchise obligations. These include registering the franchise agreement and disclosure document with the Ministry of Commerce within 90 days of signing the agreement, in accordance with the applicable registration requirements. Nor does lender approval relieve the franchisor of responsibility for the accuracy of the information it provides.

Practical takeaway: Before marketing your franchise opportunity as eligible for finance, check the brand’s eligibility, prepare supporting evidence and clarify both parties’ responsibilities. Treat the lender’s decision as a separate checkpoint, not an assumption on which to base commitments for opening the outlet.