South African lending standards

Another interesting article from Durban, South Africa this week: Ex-franchisees of Mr Video challenge contract.

It seems that business loans and leases were arranged before an investor (borrower) had actually seen the commercial contract (franchise agreement).

One entrepreneur said: “When you ask for a copy of the contract, you are always told to secure a bank loan and the lease agreement first…

This ex-franchisee closed his shop after nine months and said he still did not have a copy of the contract that he had signed.

Now, well that is funny.

Notwithstanding the franchisor’s actions which are notoriously difficult to define and almost impossibly expensive to prove in Court, the best investigation area may prove to be the lender [not the head office].

  • How does a banker or non-bank lender perform their lawfully required lender due diligence on a business loan without seeing a copy of the proposed contact first?

This would not be the first time when a franchisor and a lender co-operated very, very closely. The benefit of asking questions of a lender is that you ask their regulator as a citizen and require not legal representation.

The appropriate lawsuit will happen once you “prove” you’re a victim of abusive lending practices.

There’s lots of time to round up the usual suspects [2 years in Ontario, Canada for example].

  • Franchisors in North America have for years made a potential franchisee sign a certificate saying they had received the franchise agreement on such-and-such a date. This proves the documents were provided.

I wonder if the franchisor can produce such documents?

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