Considering “lack of startup and working capital” is one of the top-cited reason restaurants fail, success generally hinges on access to capital. Chain restaurant investments offer attractive opportunities to lenders (i.e., debt side) and owner/operators (i.e., equity side). Still, they aren’t without risk. That risk is part of the reason traditional commercial lending has been tight in the wake of the ’08 financial crash — and why so many restaurants have turned to private equity as a means to fund growth.
Restaurant lending generated headlines last year when it was announced that GE Capital, one of the largest lenders to the restaurant space, would sell the bulk of its restaurant financing assets in order to focus on its industrial businesses. GE Capital had assisted some of the biggest restaurant companies in their expansion both prior to and after the recession. At the time, the uncertainty of the pending sale caused restaurant borrowers to seek alternative lending sources. Still, there are restaurant commercial lenders who’ve continue to add a jolt to some of the biggest chains in foodservice when they need it most.
Here’s a rundown of some of US-based commercial lenders who have teams devoted specifically to restaurant financing:
WELLS FARGO
Wells Fargo provides restaurant financing to corporate brands, large multi-unit restaurant franchisees, and other investors. The company recently served as the sole lender of a $25 million senior secured credit facility to Arby’s; the joint lead arranger of a $100 million senior secured credit facility to Bravo Brio; and the sole lender of $14 million in senior secured credit facilities to El Pollo Loco. In addition to the US, Wells Fargo also offer commercial financing solutions in the UK and Ireland.
REGIONS
Regions Restaurant Banking Group was formed in 2009 and concentrates on maintaining active relationships with strategic, established names in the restaurant space. The company also offers financing specific to McDonald’s franchisees, including new unit financing, rebuilds, equipment and unit improvements, and relocations.
CIT
CIT provides customized financing and advisory services for restaurant companies in all stages of the business cycle. Services include turnarounds, restructuring, debtor-in-possession financing, and franchise financing. In 2016, CIT announced the launch of a mid-cap restaurant franchise finance practice to complement its large and small restaurant franchise financing businesses. The launch allows CIT to provide full market coverage financing solutions for restaurant franchisors and franchisees, regardless of the number of stores a franchisee owns, or the dollar size or finance structure needed.
BANK OF AMERICA MERRILL LYNCH
Bank of America Merrill Lynch serves operating companies, franchisees and franchisors of all types and sizes. Recent transactions include $7,500,000 in refinance and acquisition financing for additional locations of Jack in the Box’s Southwest franchisee; an undisclosed secured credit facilities loan to Jimmy John’s; and a $2,800,000 million loan to ELA Foods, a Popeye’s franchisee, for new store development.
CITIZENS BANK
With over $4 billion in loan commitments, Citizens offers a slew of services for restaurants, including: development lines of credit, revolving lines of credit, term loans, and interest rate risk management. To help optimize liquidity and control operating costs, the bank also tailors cash management and payment solutions for restaurant businesses. Citizens works with both national and regional chain restaurant operators as well as multi-unit restaurant franchisees.
SUNTRUST
Suntrust covers over $1 billion of credit commitments for clients ranging in size from small restaurants to large-owned corporate operators, including franchisors and franchisees. The lender offers treasury and payroll services, as well as traditional and SBA lending through a network of commercial and business bankers; corporate and investment banking services for large operators; and a program lending group available to select franchise systems.
BMO HARRIS BANK
BMO Harris Bank offers a team of franchise finance specialists and services such as financing for acquisitions, development, and remodeling to help your franchise prosper. The bank was active in Canada’s restaurant finance scene for years before entering the space in the US in 2013.
BRIDGE FUNDING GROUP
Headquartered in Maryland, BFG was formed in early 2016 when BankUnited merged two of its subsidiaries, Bridge Capital Leasing and United Capital Business Lending, to form one national finance company. With over $1.5 billion currently in total assets, BFG works with franchise operators across the country in many regional and national brands to offer financing acquisitions of existing stores, development of new locations, reimaging, and relocations. Among the brands the company works with are Domino’s, Taco Bell, Wendy’s, and Jamba Juice. Recent deals include Wendy’s® Franchisee
$1.2 million in equipment Finance to a Wendy’s franchisee; $560,000 in equipment finance to a Dunkin’ Donuts franchisee; and $450,000 in equipment finance to a Popeye’s franchisee.
FIFTH THIRD BANK
Fifth Third has more than $2.5 billion in loan commitments across the restaurant and beverage sectors, focusing both national and regional restaurant and beverage companies. Services include interest rate risk management, currency and payment processing for chain operators, multi-unit franchisees, and coffee and specialty operators.
TD BANK
TD offers several products geared toward restaurants, including: real estate acquisitions and development; equipment purchases; loan re-financing; store remodels and buyouts.
WHY COMMERCIAL LENDERS ARE INTERESTED IN THE RESTAURANT INDUSTRY
While restaurants were historically viewed as a risky space by lenders, available market data regarding the industry has become more sophisticated and more readily available, allowing global, national and regional commercial banks to conduct more effective underwriting. There’s also an increased demand in the restaurant world for senior debt, due to franchisees continually opening new stores, remodeling, and buying and selling real estate.
But among the most significant reasons lenders extend credit to those in the restaurant or franchise space is industry growth. Even as the amount of disposable income allocated to food has declined, the percentage of food expenditures outside the home has increased (some 8.7% in the past ten years, in fact). Last year, for the first time in history, Americans spent more money at bars and restaurants ($54 billion) than they did on groceries. Even during times of recession, Americans often trade down, but don’t give up dining out entirely — making restaurants among the biggest beneficiaries.
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ABOUT AARON ALLEN & ASSOCIATES:
Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in growth strategy, marketing, branding, and commercial due diligence for emerging restaurant chains and prestigious private equity firms. We work alongside senior executives of some of the world’s most successful foodservice and hospitality companies to visualize, plan and implement innovative ideas for leapfrogging the competition. Collectively, our clients post more than $100 billion, span all 6 inhabited continents and 100+ countries, with locations totaling tens of thousands.