Buying a franchise: signing the agreement before loan approval

You have chosen a brand, the franchisor is expecting you to sign, and the bank is still assessing your application. This is more than a timing issue: signing may commit you to obligations that remain binding even without a loan. Before joining a franchise network in Slovenia, establish when the agreement takes effect and what happens if you cannot secure financing on acceptable terms.

1. Distinguish the bank’s interest from funds actually being available

An initial discussion, an indicative repayment calculation and a positive response from a bank adviser do not guarantee that you will be able to pay for equipment or the initial franchise fee. Even loan approval may come with conditions you must meet before drawing down the funds.

Ask the bank to confirm in writing what stage your application has reached and what is still outstanding. In particular, check:

• whether the bank requires a signed franchise agreement or will accept an agreed draft;
• which supporting documents it needs to make a final decision;
• how much of your own money you must contribute, and when;
• what security is required before funds can be drawn down;
• whether the money will be paid to you or directly to suppliers;
• which expenses it can finance and which it cannot.

Then compare the bank’s conditions with the franchise offer. If the initial franchise fee is payable on signing, but the loan can only be drawn down once other conditions have been met, there is a funding gap. A verbal promise that the bank will sort out the financing “soon” does not close that gap.

Draw up a list of dates: signing the agreement, each payment deadline, the bank’s expected decision and the earliest possible drawdown. The aim is not to produce a complete financial plan, but to identify obligations that arise too soon.

2. Understand what Slovenian law provides

Slovenia has no dedicated franchise legislation, compulsory franchise register or specific statutory pre-contractual disclosure document. A franchise agreement is an innominate contract — one not specifically regulated as a distinct contract type — governed by the general provisions of the Slovenian Obligations Code (Obligacijski zakonik, OZ). Competition law is also relevant.

The OZ governs the formation of contracts, contractual terms, performance of obligations and the consequences of breaches. The principle of good faith and fair dealing is important during negotiations. However, it does not give you an automatic right to withdraw from a signed franchise agreement without consequences because a business loan has been refused.

A loan refusal does not, in itself, generally cancel your contractual obligations. The agreement’s terms and the particular circumstances are decisive. Nor should you expect the cancellation rights available for certain consumer purchases to apply when buying a franchise to operate a business.

Discuss with a lawyer whether to use a suspensive condition, under which specified effects of the agreement only arise once the agreed financing is secured, or an expressly agreed right to withdraw. These are not the same mechanism. The clause must clearly state which obligations apply while you are waiting and which do not yet apply.

3. Define the financing precisely enough

A sentence such as “the agreement takes effect upon loan approval” may be too vague. The bank might approve a smaller amount, a shorter loan term or security requirements you cannot meet. The parties may then disagree over whether the condition has been satisfied.

Before having the clause legally drafted, agree on the following points:

• Amount and scope of financing: what minimum amount do you need, and which obligations must it cover?
• Acceptable terms: what limits on the loan term, costs and security requirements are essential for you?
• Final deadline: by when must the decision be made or the funds be available for drawdown?
• Evidence: which written document will confirm approval or refusal?
• Your responsibilities: by when must you submit a complete application, and how will you keep the franchisor informed?
• Consequences: what happens to the agreement, payments and costs already incurred if financing is not secured?

The arrangement should not depend solely on your subjective view of whether the bank’s offer is attractive. Use verifiable criteria agreed in advance with the bank and your legal adviser.

Make specific provision for delays in the decision. Any extension should be in writing and set a new deadline. If training, project preparation or other services are to begin while you wait, agree in advance how they will be authorised and whether payment will be due. Do not assume they will be free if the franchise never opens.

4. Align the related agreements too

A condition in the franchise agreement does not, by itself, bind the landlord, equipment supplier or refurbishment contractor. You could find that the franchise agreement does not take full effect because the loan was not approved, while you remain committed to paying for equipment you have ordered.

For each related agreement, record when it becomes binding, when the first payment falls due and how much cancellation would cost. Wherever possible, align the financing conditions and deadlines. Where this is not possible, limit early orders to costs you can cover without the loan.

Before signing, ask the bank to confirm whether the proposed conditional agreement meets its requirements, and have a lawyer check that the documents are consistent. Give the franchisor a clear timetable and obtain a written agreement, rather than simply relying on their understanding if there is a delay.

Practical conclusion: do not sign an agreement on the assumption that your loan will be approved. First, set out in writing the financing required, the deadline and the consequences of refusal, and carry out the same checks for all related orders.