Quick Service Restaurant Feasibility Study in North Dakota

North Dakota fast food: second in its own state, last in the nation

Quick service restaurants in North Dakota drew 55 loans over FY2017 to FY2026, $21.9 million approved. The state ranks 48 of 54 for limited-service restaurants, which is near the bottom nationally, yet within North Dakota the class is 2 of 39 among financed classes. The location quotient of 0.85x says its share of such loans is a little under the national share. The class is small by national measure and large by local measure: for North Dakota lenders, the quick service restaurant is one of the most common SBA borrowers.

Franchise-heavy, and a 504 market

The franchise share is 47.3%, so almost half of the loans go to branded operators. Program mix is 41 SBA 7(a) loans and 14 SBA 504 loans. On the 504 side Dakota Business Lending shows 9 loans and $4.7 million. On the 7(a) side three lenders tie at 5 loans: First Western Bank & Trust with $873,300, Town and Country CU with $507,000 and Bravera Bank with $180,000. The median loan is $176,000, or 0.57x the class median nationally, and the heart of the file extends from $70,000 to $516,500. A borrower buying land and building for a drive-through should expect 504 conversations, while one taking over a leased unit sits in the 7(a) pool.

Cancellation is a 9.3% floor for the FY2017 to FY2024 cohort, matched by a 9.3% ceiling. A North Dakota charge-off rate is absent for want of 30 seasoned loans, so nothing should be inferred from the gap. Because nearly half the files are franchised, a lender can partly rely on the franchisor's system, but a franchise name is not a guarantee of any one location's sales.

What a North Dakota study must test

Cass County has 20 loans, Morton and Ward each have 6, and Burleigh and Grand Forks each have 5, so the evidence sits in Fargo, Bismarck, Minot and Grand Forks. A study must test demand through traffic counts, daytime population and competing brands, and it must be honest about thin markets outside those cities. Cost has to cover the drive-through lane, kitchen equipment and the franchise fees and buildout the brand requires. Coverage of the debt must hold through winter weather and through the weak opening months. The appraisal should say what a restaurant building is worth to a non-restaurant buyer. Yearly volume has hovered at 3 to 8 loans, with a high of 8 in FY2019, which is steady lending and not a boom.