Restaurant franchise financing for a second unit in Smyrna, TN turns on one question: can the first unit's cash cover the debt payments for both? This post works an invented coverage test first, then splits the second unit's budget between equipment financing and a term loan. Construction of the space is outside this site.
A coverage test on the first unit's cash comes first, then the second unit's budget split by product, with an equipment loan and a term loan worked side by side. Dollar figures are invented.
Restaurant franchise financing starts with the first Smyrna, TN unit's coverage test
Before any budget line, the first unit's books answer the main question: can its cash carry the payments for both units? Those books show monthly sales, food and labor cost as a share of sales, and the cash left each year to cover debt payments. Dividing that cash by the yearly debt payments gives a coverage ratio.
Illustration only, invented figures: the first unit leaves $186,000 a year for debt payments and already pays $3,150 a month, or $37,800 a year. Its coverage is 4.92 before the second unit. The two new loans worked out further down add $57,887.40 a year and bring it to 1.94, counting only the first unit's cash and none from the second.
A ratio of 1.00 would mean every dollar of that cash goes to debt payments. The further the figure sits above 1.00, the more room the business keeps for a weak sales month at either unit while the second one builds its customer base.
In the same invented example, a year in which the first unit's cash fell by a fifth, to $148,800, would leave coverage at 1.56 with both new loans in place.
ZIP Code Business Patterns, a separate file, lists 74 limited-service and 55 full-service restaurant employers with a ZIP 37167 address.
The second unit's budget, line by line, split by product
Illustration only, invented figures: a franchisee who runs one quick-service restaurant plans a second. The table pairs every budget line with a product.
| Budget line | Invented amount | Product |
|---|---|---|
| Franchise fee for the second unit | $35,000 | Term loan |
| Kitchen equipment package | $142,000 | Equipment financing |
| POS terminals and kitchen display screens | $9,800 | Equipment financing |
| Smallwares | $6,200 | Term loan |
| Crew training travel | $7,400 | Term loan |
| Lease security deposit | $14,600 | Term loan |
| Cash reserve for the new unit | $25,000 | Working capital |
| Total | $240,000 |
Costs for the space itself are left out of this budget on purpose: construction is outside this site, and the franchisee settles it with the landlord or from other sources.
Splitting the lines this way matters because the products are secured differently. The kitchen package and the screens can secure their own financing; a franchise fee, a deposit and travel leave nothing behind to secure, so they sit on the term loan, where a funding partner may weigh the whole business instead.
A funding partner may also ask for the franchisor's written consent to the second unit and the franchise agreements for both units.
How to finance a franchise unit with two products: equipment financing and a term loan
Still using the invented budget: the $151,800 of kitchen equipment and POS hardware goes on equipment financing over 60 months at 9.45%, which comes to $3,184.37 a month. The $63,200 of fee, smallwares, training and deposit goes on a term loan over 48 months at 11.2%, which comes to $1,639.58 a month.
Together the two invented loans come to $4,823.95 a month. The equipment payments total $191,062.20 with $39,262.20 of interest; the term payments total $78,699.84 with $15,499.84 of interest. The $25,000 reserve can sit as working capital the unit draws only if it needs it.
Rutherford County, TN had 299 limited-service restaurants and 223 full-service restaurants with paid employees in 2023 (County Business Patterns, NAICS 722513 and 722511). Restaurant costs beyond a second unit are on the restaurants page; more articles are on the blog.
By Deltaspring Lending Group · Updated
