Quick Service Restaurant Feasibility Study in Arkansas

Arkansas quick service deals that never closed

Arkansas quick service restaurant loans have an unusual habit: a large share of approvals were later cancelled. Among Arkansas quick service loans approved in FY2017 to FY2024, cancellation took at least 19.8%, and the ceiling, which treats undisbursed loans as cancelled too, is also 19.8%. That rate runs above limited-service restaurants nationally by more than our distinctness margin and stands apart from Arkansas's cancellation record across all classes. Little else about the cell is unusual. Quick service is the state's 2 of 39 class by loan count, yet Arkansas ranks only 39 of 54 for it nationally, with 103 approvals worth $51.1 million in FY2017 to FY2026; its location quotient is 0.91x, and the median loan of $339,500 is 1.09x the national median for the class.

Brands, small lenders and Northwest Arkansas

Franchised concepts account for 57.3% of loans, so most Arkansas quick service borrowers operate under a brand agreement. Of the 103 approvals, 91 were 7(a) and 12 were SBA 504, with Rural Missouri, Inc. the main 504 holder at 7. ACC Capital is the largest 7(a) holder at 9 loans, with The Huntington National Bank at 7, Bank OZK at 6, and Stearns Bank National Association and Arvest Bank at 5 each. Loans cluster between $161,000 and $517,500. Benton County leads with 20 approvals, Pulaski follows with 17 and Washington with 12. FY2021 was the high year, 16 loans worth $13.8 million, against 4 in FY2024.

Losses in line with the class

Funded loans have fared about as quick service has nationally. Of 43 Arkansas quick service loans funded between FY2017 and FY2021, 7.0% sit in charge-off and 4.7% reached it within five years, which puts the bulk of the losses in the early years.

A cancellation floor this high is a closing problem, and an Arkansas quick service study should be built to solve it. Franchisor site approval, the lease or land contract, permits and a construction bid should all be in hand before approval, because each can unravel a deal after it. Demand has to be tested at the pad: traffic counts, the side of the road morning and evening traffic uses, drive-through stacking, and the other brands at the same intersection. The project budget needs the franchise fee, build-out or construction, equipment and pre-opening costs at today's quotes. Coverage of the debt should be modelled after royalty and advertising fees at a first-year sales level below the system average. Where the borrower buys the pad, the collateral is a single-tenant restaurant building, and the study should give that value an income basis that does not depend on one brand surviving.

Arkansas's cancellation and charge-off figures are floors, and the lenders named hold these loans today by SBA's record.