Coffee Shop Feasibility Study in New Jersey

A charge-off floor of 0.00%

New Jersey's coffee and snack bar loans stand out for what has not happened to them. No charge-off at all: across 72 New Jersey coffee loans disbursed between FY2017 and FY2021 the charge-off floor is 0.00%, matched by the five-year measure. That clears our distinctness margin: it sits below the class nationally and apart from New Jersey's charge-off record across all classes. Everything else about the cell is close to type. The state's 245 approvals in FY2017 to FY2026, worth $69.4 million, rank it 11 of 53; at a location quotient of 0.90x coffee sits a little below its national share of the state's lending, and inside New Jersey the class ranks 8 of 39. A median loan of $187,500 is 0.78x the national coffee median.

Small loans from one dominant bank

New Jersey coffee lending is almost all 7(a), with 241 loans against 4 under SBA 504, and much of it is very small. Half of these loans fall between $50,000 and $396,000. TD Bank, National Association holds 66 loans worth only $3.7 million, the signature of a small-loan product, while Wilmington Savings Fund Society FSB holds 14 worth $5.1 million and The Huntington National Bank 13. Provident Bank and Manufacturers and Traders Trust Company follow with 12 and 11. Franchise concepts make up 44.1% of loans. Bergen County leads the state with 37 approvals, then Ocean with 24 and Monmouth with 21. Approvals rose from 10 in FY2021 to 40 in FY2023, worth $15.4 million, and stood at 35 in FY2026.

Where the risk sits instead

The clean loss record does not mean every approved deal closed. At least 16.3% of FY2017 to FY2024 New Jersey coffee approvals were cancelled, and 16.9% if undisbursed loans are counted, a floor above the class nationally though not one our screen flags. For a borrower, the practical risk in this market has been a deal that falls apart before funding, not a funded loan that fails.

A New Jersey coffee study should be written with that in mind. It has to pin down the lease, the build-out budget and the franchisor's approvals early, since those are the commitments that can unravel between approval and closing. Demand should be tested at the address: commuter and pedestrian counts, parking, any drive-through lane, and the rival cafes and brands within walking or short driving distance. Cost needs firm quotes for fit-out and equipment against a loan that is often small. Debt service coverage should be tested after rent, royalties and labour at a realistic opening volume. With loans this small there is often little real estate to appraise, so the lender's case rests on the study's cash-flow forecast and the borrower's equity.

The class covers coffee shops and snack bars under one code. A charge-off floor of 0.00% covers loans still open, which can yet default.