Franchise Finance in Taiwan: Planning for Loan Rejection, Shortfalls and Delayed Funds Before You Sign

When choosing a franchise in Taiwan, if you need a loan to fund your opening, look beyond interest rates and ask: will your franchise payment obligations begin before your funding is secured? Joining a franchise network is a long-term commitment. A franchisor’s willingness to introduce you to a bank is neither a promise of approval nor a guarantee that you can walk away if the loan falls through. Before signing, align your financing timetable with your franchise contract.

1. Distinguish between help with an application and secured funding

When a franchise sales representative offers to ‘help arrange finance’, this may mean no more than referring you to a bank, providing an opening budget or helping prepare documents. Whether a loan is approved, how much you can borrow and when the funds are released still depend on the lender’s assessment and conditions. Other franchisees’ success in obtaining loans does not mean your application will have the same outcome.

Ask the franchisor to set out the scope of its assistance in writing, and check the following directly with the lender:

• Who is the borrower? Will the applicant be an individual, a company or another business entity? Will a guarantor or security be required?
• What stage has the application reached? An initial enquiry, receipt of documents, approval and satisfaction of all conditions for releasing funds are separate stages.
• Are there restrictions on how the loan can be used? Are franchise fees, fit-out costs, deposits, stock and working capital all eligible uses?
• Who charges fees? Does the franchisor, introducer or lender charge a service fee? Is it still payable if the application is rejected?

Do not treat a verbally estimated loan amount as available cash. Nor should you commit to non-cancellable opening costs simply because someone claims approval is ‘guaranteed’.

2. Use the disclosure information to build two timetables

Taiwan does not have a single dedicated franchise law covering every aspect of franchising, but that does not mean franchises are unregulated. The Fair Trade Commission’s Disposal Directions (Guidelines) on the Business Practices of Franchisors, together with the Fair Trade Act, address matters such as the disclosure of important information during franchise recruitment. Civil matters, including the formation, performance and termination of contracts, must be assessed under the Civil Code and the specific contractual terms.

Under these guidelines, the franchisor should provide important franchise information ten days before entering into a franchise relationship or preliminary franchise relationship, or within a reasonable period determined for the particular case or a period agreed by both parties. This information includes fees payable to the franchisor or its designated parties before opening and during operation, operating restrictions, and conditions for changes, termination and rescission. Failure to provide the required information without a legitimate reason engages Article 25 of the Fair Trade Act only where it is sufficient to affect trading order. Missing information does not automatically give you an unconditional right to a refund.

Turn the franchisor’s cost information into a ‘payment timetable’: list each recipient, due date, whether payment can be deferred and whether it is refundable on cancellation. Then confirm a ‘financing timetable’ with the lender: when the documentation will be complete, when a decision might be available and what must still be done before funds can be released.

The key point where these timetables intersect is whether the first non-refundable expense falls due before the funds are actually available. If the bank requires you to contribute your own money first or submit proof of payment, you will need to budget separately for interim funding rather than focus solely on the total loan approved.

3. Address three financing scenarios in the contract

‘We can discuss it if the loan falls through’ is not an adequate way to manage risk. Consider asking a Taiwanese lawyer to help incorporate financing conditions into the franchise contract. Specify when the contract takes effect, when payments become due and under what conditions you can bring it to an end, rather than blurring provisions with different legal effects.

The loan is rejected: Agree an application deadline, which lenders’ decisions will count and what evidence you must provide. If you have supplied accurate, complete documents as required but are still refused funding, can you end the contract? When will payments already made be refunded? Which costs may the franchisor deduct, provided they have actually been incurred and can be supported by evidence?

The approved amount is insufficient: Set a minimum funding amount or a maximum amount you must make up from your own resources. Approval of a small loan should not be treated as satisfying all financing conditions because the wording is vague. Also clarify whether you must accept an offer that is conditional on adding a guarantor or providing additional security.

The loan is approved but the funds are delayed: Agree whether franchise payment deadlines and the opening date can be extended, how long any extension will last and what happens after the final deadline. Do not make approval alone the trigger while overlooking conditions for releasing the funds that remain outstanding.

These protections must be negotiated; the law does not automatically give you a right to withdraw if financing fails. The terms should also explain the applicant’s obligation to co-operate, to avoid disputes arising from late documents or a voluntarily withdrawn application.

4. Check whether the protections cover other expenditure

Even if the franchise contract allows you to end it when financing falls through, that does not mean the premises lease, fit-out orders or other purchasing contracts will also be cancelled. Check each document to see whether payments can be staged, the effective date deferred or compatible financing conditions added. Different recipients will usually require separate negotiations.

When comparing brands, assess whether the franchisor is willing to accommodate reasonable financing arrangements. A franchisor that provides a complete budget and clearly explains refund and extension procedures allocates risk differently from one that simply urges you to ‘sign first and borrow later’. Brand recognition is no substitute for checking the details.

Finally, run through a failed-financing scenario. Assume you receive no loan funds at all, and list everything you would still have to pay, amounts already paid that you could not recover and the documents needed to withdraw. If the exposure exceeds what you can afford, reduce your commitments first rather than plugging the gap with a credit card or another unconfirmed loan.

Practical takeaway: Before financing is confirmed, set out clearly what happens if a loan is rejected, the approved amount falls short or the release of funds is delayed. Your financing plan can genuinely support your franchise commitment only when payment dates, exit conditions and the availability of funds are aligned.