Equipment Finance for Franchises in Taiwan: Checking Purchases, Leases and Loan Obligations

When choosing a franchise in Taiwan, coffee machines, refrigerated cabinets and kitchen equipment often account for a substantial share of the start-up budget. A franchisor’s promise of “equipment instalments for an easy launch” does not mean it takes on your borrowing risk. Before joining a franchise network, review the franchise agreement, equipment order and finance documents together. Establish who owns the equipment, who receives payment and who must keep paying if the business cannot open.

1. First, establish whether you are buying equipment or paying to use it

Arrangements described as “monthly equipment payments” can involve very different legal relationships. Do not rely on marketing labels: ask for the full contract and payment schedule.

• Buying with a loan: You borrow from a bank or another lender to pay for the equipment. Check the documents separately to establish whether the equipment is subject to a security interest and whether you can sell it.
• Buying in instalments: You pay the purchase price over time, but the seller may retain ownership until it has been paid in full. Having the equipment in your premises does not necessarily mean you are free to dispose of it.
• Leasing equipment: You pay rent for the right to use the equipment and may have to return it at the end of the term. If there is an option to buy, the price, procedure and conditions should be specified. Do not assume ownership transfers automatically after the final payment.

Ask the franchisor to list the equipment models, quantities, suppliers, payment recipients and owners. If it arranges an introduction to a finance provider, establish whether it is merely making a referral or is also the equipment seller, lessor or a party to the finance agreement.

Pay particular attention if the franchise agreement is signed by your company but the finance documents require you to borrow personally. This is not simply an administrative detail: it places repayment obligations on a different legal person. Closing the company’s business does not automatically discharge your personal loan.

2. Compare complete payment schedules, not just monthly payments

Ask each prospective franchisor to provide both cash-purchase and finance options for the same equipment package. Your comparison should include, at a minimum, the initial payment, all subsequent payments, arrangement fees, mandatory insurance, maintenance charges and any final payment needed to acquire the equipment. Also confirm whether quoted prices include tax.

You can organise the figures as follows:

Estimated total expenditure to acquire and use the equipment = initial payment + all instalments or rental payments + mandatory associated costs + end-of-term purchase payment.

List refundable deposits separately, with their refund conditions. Do not treat them as permanent costs, but do not overlook the start-up funds they tie up. When comparing finance with an outright purchase, check that both options include the same maintenance, repair and spare-parts services; otherwise, the totals are not directly comparable.

Next, ask the finance provider to answer these questions in writing: Is the interest rate variable? What charges apply to late payments? Is there an early repayment charge? Can one missed payment make the entire outstanding balance immediately due? Do not try to calculate an annual interest rate simply from the difference between the total payments and the cash price. Request a detailed repayment schedule and the relevant explanation of financing costs.

Finally, include monthly equipment payments in a cash-flow forecast based on low revenue. If the approved loan is smaller than expected, or the initial payment is higher, you must still retain working capital for rent, wages and stock. Loan approval is not the same as affordability.

3. Align finance approval, delivery and acceptance in one timetable

A common mismatch arises when the franchise agreement and equipment order become binding before the loan is approved. A refusal of finance does not automatically cancel the other contracts. Before signing, negotiate whether finance approval is a condition for the transaction to take effect or for performance to continue, and what happens if finance is refused, the approved amount is insufficient or the terms change significantly.

Equipment delivery terms should go beyond “delivered to the premises”. Agree acceptance checks suited to the equipment’s functions, such as completed installation, suitable power and drainage connections, test operation, and delivery of all required accessories and maintenance documents. Specify who must sign the acceptance record.

Above all, do not sign documents stating that equipment has been received and accepted before it has arrived or been tested. The finance provider may use those documents to release funds to the supplier. You could then face payment demands even if a dispute arises over the equipment.

Arrangements worth negotiating include:

• No final payment or initiation of the relevant payment process until the equipment has passed acceptance checks.
• Clear procedures for repairs, replacement and refunds if delivery is delayed or the equipment does not meet agreed specifications.
• Replacement equipment during repairs, with responsibility for transport and installation costs clearly allocated.

These arrangements must be confirmed by the relevant contracting parties. A franchisor’s verbal promise to defer monthly payments may not bind an independent finance company.

4. Check Taiwan’s disclosure rules and your obligations after closure

Taiwan does not have a single dedicated franchise law covering every aspect of the relationship, but franchising is not unregulated. The Fair Trade Act and the Taiwan Fair Trade Commission’s principles for handling cases involving franchisors’ business conduct are important reference points. Equipment purchase, lease and loan obligations must also be assessed under the Civil Code, other applicable laws and the individual contracts.

Under those principles, the amount or estimated amount of capital equipment costs payable to the franchisor or its designated parties before opening should be disclosed. Requirements to buy equipment from designated parties or use specified equipment standards are also material information. This information should be provided ten days before entering into a franchise or preliminary franchise relationship, within a reasonable period determined for the particular case, or within a period agreed by both parties. Failure to provide it without proper justification may breach Article 25 of the Fair Trade Act if the omission is sufficient to affect trading order.

Relevant contracts are also subject to a pre-signing review period of at least five days, or a reasonable period determined for the particular case. However, disclosure of equipment costs does not guarantee that the finance offers good value, nor does it mean the authorities have approved the arrangement. A disclosure breach should not lead you to assume that a loan is invalid or that you can stop making payments.

Before signing, ask a Taiwanese lawyer to cross-check whether equipment rent or loan repayments continue after the franchise relationship ends, whether the equipment can be resold or transferred, and who pays for dismantling, transport and collection. Even if the other party takes the equipment back, establish how any proceeds will be credited against the debt and whether any shortfall can still be pursued. If the franchisor promises to buy back the equipment, specify who is legally obliged to do so, how the price will be calculated and the payment deadline. Do not treat an expected buyback payment as a guaranteed source of repayment.

Practical takeaway: Before paying, obtain the equipment list, complete payment schedule and finance agreement. Check ownership, acceptance procedures and post-closure obligations item by item. Affordable monthly payments are only the first test: even if your plans to open the business change, you should know exactly what you still owe, and to whom.