Lending to Restaurants Picks Up, but Mostly for Big Players

Jessica SarterBoeFly In The News

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By Annie Gasparro --> read the original article posted 6/13/13 here

Banks are lending money at a faster pace to large restaurant franchisees, but mom-and-pop shops with an appetite to expand are still struggling to get the cash.

 

Loans to franchisees–a key source of funding that helped the likes of Pizza Hut and Applebee’s spread nationwide–fell dramatically during the recession. “Now the credit markets are very active again. It’s a depth and breadth that we haven’t seen in the last few years,” said Dave Farwell, head of franchise financing for RBS Citizens.

 

Sales are rebounding in the restaurant industry, and interest rates are at historic lows, making both bankers and restaurant operators feel like it’s a good time to grow.

For instance, Border Foods Inc., a top Taco Bell franchisee with roughly 180 total restaurants, recently secured a $17 million line of credit to fund remodels, new site development or acquisitions. The loan is part of a $98 million seven-year senior credit facility.

However, veteran small franchisees are still struggling to raise enough cash just to meet the renovation demands of their parent brands, said Brad Swanson, managing director of KeyBanc’s consumer & retail group.

Whether its remodeling their restaurants, like Wendy’s is asking, or investing in a menu overhaul, like Burger King recently required, its a lot to ask of small businesses.

“There is a population of franchisees who got on board in the ’70s and ’80s when quick-serve and casual dining were really expanding, and they have a handful of units now,” Mr. Swanson said. “For small franchisees like that, a $600,000 to $800,000 remodel is a significant investment.”

Justin Trouard, a single-unit franchisee who opened his first restaurant earlier this year, said he was shocked at how difficult it is for small business owners to even be considered for a modest loan.

“The big banks’ requirements are ridiculous. You have to have 50% of the loan in cash and 50% in collateral,” he said. “At that point, you don’t even really need a loan.”

For a while, all he could find were offers for unsecured loans at interest rates of 15% to 20%. Mr. Trouard eventually received an offer from a local bank using an online matching service called BoeFly, and he recently opened his Dickey’s Barbecue Pit franchise in the D.C. area.