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For many franchise owners, financing their first restaurant becomes one of the largest investments they will ever make. Since there are many different avenues to secure funding for such a major purchase, Franchise Update asked several multi-unit franchises how they financed their first restaurant.
Some of the top methods of financing the franchisees listed were debt, equity, SBA loans, or a combination of these approaches. The factors involving financing can also vary greatly. Those include an individual’s existing financial portfolio, the cost of real estate, the size and features of a building, and whether the purchase involves a single unit or if it is part of multiple location openings. It is also often more difficult to secure lines of credit for an initial business than for one with an established track record that wants to grow.
In a related question, we asked other multi-unit restaurant franchisees about their experience using private equity, local, or national banks, to help fund their growth. Several have used private equity groups, while many others have worked with banks. Forming strong relationships with these groups is critical, especially with banks. See the Franchisee Bytes section below to get more insight into these financing methods from franchisees across the restaurant industry.
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Company: The Hari Group
Brands: 101 Dunkin’, 22 Dave’s Hot Chicken, 6 McAlister’s Deli, 2 Tide Dry Cleaners, 1 Currito
Years in Franchising: 16
For the first restaurant, we used a traditional financing structure with 60 percent debt and 40 percent equity. The location was a former Starbucks that we converted into a Jersey Mike’s. Starbucks had relocated to a nearby site with a drive-through, which allowed us to take over the existing space and retain some of the infrastructure, including the bathrooms.
All in, the buildout came to approximately $375,000, of which about $120,000 was equity that I personally invested.
Brands: 6 Ziggi’s Coffee
Years in Franchising: 10
Our first franchise was financed through a combination of personal investment and traditional financing. We took a conservative approach that allowed us to truly learn the business, build strong fundamentals, and gain confidence before scaling.
Company: PB New Jersey LLC
Brands: 3 Wendy’s. Previous operating experience with Tijuana Flats, Wahlburgers, Guy Fiery's All American Restaurants, Honest John’s. Signed a new franchise agreement for 15 Potbelly shops.
Years in Franchising: 34
Financing new ventures is challenging. Traditional lenders generally want to see a track record with a brand consisting of anywhere from three to five units. As with my first brand, we have turned to the SBA for a financing package for the first three shops. As we have in the past, once my father and I have three Potbelly Shops open and operating, we will transition to more traditional franchise financing. My father and I work at building strong relationships with our lenders to facilitate shorter lead times, ease of refinancing, and establish development lines of credit for continuous expansion and improvement of our properties.
Company: Costley Enterprises Inc.
Brands: 14 Cicis Pizza
Years in Franchising: 28
My path into ownership wasn’t traditional, but it was foundational. A franchisee in Tulsa initially offered me a partnership, and eventually, I decided to purchase two stores in Oklahoma City by borrowing directly from him. Within 18 months, we grew those locations to nearly $1 million in sales. I later moved to Tulsa, took full operational control, and bought him out entirely within three years.
From there, growth was built on trust. Between 2013 and 2018, I acquired 15 additional stores. In several cases, owners believed in my ability to operate and grow the business and supported me upfront fiscally. That trust is something I don’t take lightly, and it’s shaped how I approach leadership and partnerships to this day.
We have great, long-standing relationships with local banks that handle our financing needs. Private equity has its place, but we’ve worked so closely with our operations team for many years and want to create roles for them. Selling pieces out to private equity could mean losing control of our group and our ability to create more opportunities for our teams.
-Alex Karcher, Operating Principal, JCK Restaurants, 61 Carl’s Jr., 11 Jersey Mike’s Subs, 8 The Human Bean, 8 Dave’s Hot Chicken, 1 Hawaiian Bros Island Grill
I have worked with all the above. The experience varies greatly and generally depends on your need for the capital and the outcome of your investment to understand the varieties.
-Amol Kohli, Managing Partner, Legacy Brands International/Chairman of the Board, Brix Holdings, Franchisee: 63 Orange Leaf, 60 Clean Juice, 36 Red Mango, 6 Humble Donut Co., 3 Souper Salad, 1 Smoothie Factory + Kitchen, Franchisor: 61 Friendly’s
With private equity, you have more flexible terms but may have to give up some control. When using local banks, it is invaluable to have a personal banker who understands your company and your needs. You do have to have a track record and provide financials. National banks are not as personal, and a change in personnel at the bank can alter the relationship.
-Lisa Starnes, Franchise Owner, Starnes Holdings, 8 Captain D’s
We’ve worked with both national and local banks. Building relationships with financial institutions is critical, and we make a point to maintain strong networks.
-Lawrence Kouri, Multi-Unit Owner-Operator, 22 Dave’s Hot Chicken
We have a great relationship with both local and national banks. Private equity has knocked on our doors, but we have not had the reason to open them.
-Andy Cabral, CEO, Vigario Management, 25 Dunkin’, 9 Baskin-Robbins
In 2012, Altamont Capital Partners backed our management team when our founder, Don Ghareeb, sold his family’s interest in Tacala. We still have Altamont leading our private equity investment in our brands. On the Taco Bell debt side, we went from a Term Loan A syndicate with 14 banks to the Term Loan B debt market in 2018 to better meet our growth and return needs. On our 7 Brew debt side, we utilize a Term Loan A syndicate currently with a combination of five national and local banks.
-Joey Pierson, CEO & CFO, Tacala Companies, 381 Taco Bell, 38 7 Brew
We have partnered with a traditional bank in national franchising, which has funded us from the early stage of our growth to now 30 units and counting. Because of our long-term business relationship, we believe we have found the perfect partner to support our future growth plans.
-Phong Huynh, Co-Owner, Fuego Investment Inc., 30 El Pollo Loco
I do not work with private equity. I do have relationships with local banks. They are great and eat with me at our restaurants all the time.
-David Weeks, CEO, The Bean Team, 9 Barberitos, 8 Dunkin’, 4 Newk’s Eatery, 1 Dunkin’/Newk’s co-brand