Buying a Franchise in Venezuela: Making the Purchase Subject to Finance

Choosing a brand does not mean you have secured the money to buy a franchise. In the franchise sector, preliminary credit approval can be mistaken for available funds. Before making binding commitments in Venezuela, negotiate what will happen if the finance does not come through, falls short or comes with terms you cannot accept.

1. Distinguish expected finance from usable funds

Do not treat a conversation with a bank, an acknowledged application or a favourable assessment as a guarantee that funds will be released. Ask for documents that clearly identify what has been approved and what remains outstanding.

Prepare a summary covering:

• Lender and applicant: who will provide the funds and who will take on the debt.
• Amount and currency: how much will be available and which expenses it can cover.
• Financial terms: interest, fees, repayment schedule and other charges.
• Security and guarantees: any assets, guarantees or personal obligations required.
• Outstanding requirements: documents, authorisations and conditions that must be satisfied before funds are released.
• Validity: when the offer expires and when the money could be received.

Also check whether the loan will be made to the operating company or to you personally. If the borrower and the franchise buyer are different parties, seek advice on documenting how the funds will reach the business and who will bear each obligation.

The decisive question is not simply ‘Has my loan been approved?’ but ‘Will I have access to the money when payment is due?’

2. Put the condition in the right contract

Venezuela has neither comprehensive franchise-specific legislation nor a general statutory pre-contractual disclosure regime requiring a standardised disclosure document with prescribed content and deadlines. A franchise is structured as a commercial contract without its own specific statutory framework, governed primarily by the Civil Code and the Commercial Code, alongside the rules applicable to each transaction.

The Civil Code provides the rules on obligations, contracts and good faith; the Commercial Code contains the relevant commercial provisions. If a lender is involved, the rules governing that lending transaction must also be reviewed.

Do not assume that a bank’s refusal allows you to walk away from the purchase without consequences. Instruct a Venezuelan lawyer to specify expressly which obligations will depend on obtaining finance and which will take effect on signing.

A suspensive condition may be a way to make certain obligations dependent on a future, uncertain event. Its wording and effects require legal review: simply adding ‘subject to finance’ at the end of the document is not enough.

Identify where the protection needs to appear. A condition included only in the franchise agreement does not, by itself, alter a lease, an equipment purchase agreement or a contract for works signed with third parties.

3. Define what finance meets the agreed requirements

The clause should make it possible to establish objectively whether acceptable finance has been secured, rather than leaving this to an arbitrary decision by either party later on.

Depending on your circumstances, negotiate:

• The minimum amount required and your planned contribution.
• The currency of the loan and its compatibility with your payment obligations.
• Acceptable limits on financing costs and the repayment term.
• The security and guarantees you will accept, and those you are unwilling to provide.
• The deadline for providing evidence of approval and, where relevant, release of the funds.
• The documents that will demonstrate whether the condition has been met.

Distinguish between approval and actual availability. An approved loan that remains subject to security not yet put in place may not meet an immediate payment need.

Make reasonable commitments yourself: submit a complete application, respond to requests and provide progress updates. Avoid promising that you will obtain the loan or accept any offer. Specify how partial approval, a late offer or terms that differ from those envisaged will be handled.

4. Agree an exit process and coordinate commitments

Set out in writing how notice will be given if the condition is not met, what evidence must be provided and whether an extension will be available. Clarify whether that extension requires both parties’ written agreement.

Specify what will happen to advance payments, the deadline for any refund and any permitted deductions. If expenses are to be deducted, negotiate for them to be identified, documented and subject to an agreed cap, rather than an open-ended reference to ‘administration costs’.

Then draw up a coordinated timetable covering finance, the franchise, the premises and payments. Before committing to non-recoverable expenditure, check what would happen if the loan were refused the following day.

Practical conclusion: do not sign solely on the assumption that you will secure a loan. Make the relevant obligations conditional on clearly defined, verifiable and available finance, and agree in advance what will happen if it does not come through.