How to Align Your Loan and Franchise Agreement

Choosing the right brand to join as a franchisee does not automatically secure funding for your investment. A positive response from a bank may not amount to firm loan approval, and signing a franchise agreement does not oblige the bank to release funds. For an entrepreneur relying on borrowing, the key task is to check that two separate agreements work together: when will payment obligations arise, when will funds become available, and which obligations will remain if the funding falls through?

1. Distinguish loan discussions from available funding

The first step is to establish exactly what the bank’s response means. A discussion at a branch, an initial assessment, a lending decision and the actual release of funds are not the same stage. A favourable assessment may depend on security being put in place, your own capital being invested, specified documents being provided or other conditions being met. Using a bank recommended by the franchisor does not remove these conditions.

Ask the bank to clarify the following in writing:

• What stage has the application reached, and which conditions remain outstanding?
• Will the full approved amount be paid into the business’s account, or will funds be paid directly to specified suppliers?
• Which invoices, agreements and security documents are required before funds can be released?
• How long is the offer valid, and at what stage are the interest rate and other costs fixed?
• How will the available amount change if part of the investment is deemed ineligible for funding?

Compare these answers with the investment items in the brand’s proposal. Do not assume that funding allocated to fitting out the premises will also cover the initial franchise fee or early operating expenses. Label each expense as funded by “own capital”, “confirmed borrowing” or “funding not yet secured”. This will reveal any shortfall on a particular payment date, even if the overall investment budget appears sufficient.

Also check that the borrowing individual or company matches the party signing the franchise agreement. If a shareholder takes out the loan personally but the business operates through a company, the transfer of funds, accounting treatment and allocation of liability need separate consideration. Clarify this structure with your accountant and solicitor.

2. Set out the financing condition clearly in the franchise agreement

Türkiye has no dedicated franchise law governing franchise agreements exclusively. Nor is there a general requirement to provide a franchise-specific pre-contract disclosure document or register a franchise system. This does not mean that franchise agreements fall outside legal scrutiny.

Depending on the nature of the relationship, the relevant legislation includes the Turkish Code of Obligations No. 6098, the Turkish Commercial Code No. 6102, the Law on the Protection of Competition No. 4054 and, for trade mark rights, the Industrial Property Code No. 6769. The business must also meet the general requirements relating to trade registration, tax and operating permits.

Do not assume that a rejected loan application gives you an automatic, cost-free right to withdraw from the franchise agreement. Rather than relying on that outcome, negotiate what will happen if funding is not secured before you sign. Obtain legal advice on how the provision will operate in your particular agreement.

A clause drafted with your solicitor should clearly address:

• The minimum funding required and the basic lending terms you would accept.
• The deadlines for completing the application and notifying the franchisor of the outcome.
• Your obligations to provide documents and follow up on the application.
• The procedure if the application is rejected, only partly approved or not decided by the deadline.
• Which obligations will take effect during this process and which will remain on hold.

Simply stating “subject to loan approval” may not provide enough clarity. The clause should also address, for example, approval for less than the required amount or demands for more onerous security than expected. If the franchisor says it will help you obtain funding, the agreement should specify whether this means referrals only or a concrete commitment.

3. Compare payment schedules in a single timetable

The franchise fee, equipment payments, fit-out stage payments and loan drawdowns may fall on different dates. The aim is not merely to make the totals match, but to ensure that funds are available when needed.

Use a single timetable to record the payee, due date, payment conditions and funding source for each payment. Ask whether there is a delay between the bank accepting the documents and transferring the money. Request that the franchisor’s timetable for issuing invoices or supplying documents to the bank also aligns with this schedule.

Pay particular attention to this potential circular requirement: the bank may need a signed franchise agreement before releasing funds, while the brand may demand immediate payment on signature. In that situation, calculate the temporary funding requirement that will arise after signing and negotiate changes to the parties’ schedules.

If the loan includes a period without capital repayments, do not assume that it is interest-free. Check the repayment schedule to see when interest is payable or how it will be added to the outstanding balance. Compare the first repayment date not with the planned opening date, but with a realistic date for the business to start receiving cash from customers.

4. Stress-test the debt burden against adverse scenarios

Do not assess the borrowing solely against the brand’s sales forecasts. Prepare separate scenarios in which sales grow more slowly, opening is delayed or investment costs rise. In each scenario, identify the cash remaining for loan repayments after operating expenses and contractual payments have been met.

When reviewing the bank’s proposal, ask about arrangement fees, security-related costs, valuation fees and any compulsory service charges, as well as interest. Assess the implications of early repayment, late payment and any variable interest rate provisions using the written offer. Loans with the same amount and term may carry different total costs under different conditions.

Do not treat bank approval as the final check. A bank’s willingness to lend does not prove that the investment is suitable for you or sufficiently resilient. Work through funding uncertainties with your accountant and ask your solicitor to examine any gaps in how the agreements allocate responsibility.

Practical takeaway: Before signing, bring the loan terms, franchise obligations and payment dates together in one file and check that they align. Do not commit to a payment whose funding is unconfirmed merely because the bank has responded positively.