Restaurant Feasibility Study in New York

Small loans, and cancellations that set New York apart

New York's full-service restaurant file differs from the state's all-asset SBA book and from full-service dining nationally in size and in cancellation. Size first: the New York median loan is $150,000, only 0.55x the national median, and New York's middle half of restaurant loans spans $50,000 to $385,125. Then cancellation. New York restaurant approvals in FY2017 to FY2024 carry a cancellation floor of 16.9%, and the ceiling is 17.7% with undisbursed loans counted.

Small loans and frequent cancellations can come from the same place: restaurants in dense markets that lease their space and depend on a lease, a permit or a liquor license falling into place before a loan can fund. The files do not record why a loan was cancelled, so that is a hypothesis for a study to test, not a finding. Franchise concepts are only 3.1% of New York loans; this is an independent operator's market.

Scale, lenders and loss

Full-service restaurants rank 1 of 39 classes in New York and the state is 2 of 54 for the class, with 2,192 approvals worth $902.2 million over FY2017 to FY2026; New York's location quotient for the class is 1.11x. Manufacturers and Traders Trust Company is current holder of 315 New York loans worth $33.0 million and TD Bank, National Association 234 worth $29.6 million, both books of very small loans. NewBank holds 113 worth $81.6 million, much larger tickets. SBA 7(a) carried 2,050 approvals and SBA 504 carried 142, most of the latter with Empire State Certified Development Corporation, at 115.

In the New York cohort of 898 loans disbursed FY2017 to FY2021, charge-offs reach 7.9% or more to date and 4.5% within five years. Volume dropped from 330 New York approvals in FY2017 to 120 in FY2021 and came back to 226 in FY2026, worth $126.1 million.

What a New York restaurant study must test

The first test is whether the deal will close: lease, permits and licensing confirmed before the loan is final, given the cancellation record. Demand must be measured block by block in New York County, with 394 approvals, and in Kings and Queens, with 221 and 206, while Suffolk, Erie and Nassau, at 171, 147 and 141, call for a suburban trade area approach. Cost at a $150,000 median leaves little contingency, so the build-out budget has to be firm. Coverage should be tested on rent as well as debt service, and the appraisal for a leased New York restaurant will rest on equipment and the leasehold.