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Historically, banks have actually been averse to lending capital to restaurants. This has changed considerably. Contributing factors include differences between the restaurant and franchise sectors. Yet, it is still considered to be restaurant financing by banks in general.
Our real estate attorneys to represent banks in NYC offer solid reasons why this has occurred:
The marketplace, in general, has become more advanced. The readily available market data is more powerful and advanced, which allows national and local banks to perform more efficient underwriting.
A loan to a franchise restaurateur can offer a more broad relationship as dining establishments have need for cash flow management, credit services and wealth management for the owners. A more comprehensive relationship enables banks to make considerable returns not limited to interest fees on loans.
A demand in the restaurant financing world for senior debt has a healthy existence. The reasons are:
The franchise dining establishment industry is a dynamic one, where there is constantly a need for senior debt, unlike manufacturing industries or high-tech markets. Consolidation and continued development of franchise restaurants have always been driven by financial obligation.
The value of the franchiser relationship offers a large barrier for loan concerns. The analysis carried out by lending institutions on the franchiser systems is a crucial element here. Advanced evaluation tools make underwriting much easier due to financial viability being more easily understood.
With consumers now spending more on food outside the home, there is a defined customer demand that allows for advancement and growth of new concepts. With private equity associated with this industry, an equity cushion is supplied. This all plays into the capability of banks to feel like they have a good credit position for restaurant lending.
It is apparent that restaurant franchise loans are still alive and well. Plus, banks still see it as an opportunity. Most banks and loan providers are searching for clear specialty markets that have enough demand and customers for relationships to be developed.
If your bank is interested in adding this product to your line of commercial loans, meet with a real estate attorney to represent banks in NYC. He or she will be able to help you plan for negotiations, loan instruments, contracts, systems analyses, and origination, as well as develop the entire program that will protect you and satisfy clients.