Restaurant Feasibility Study in North Dakota

The leading class in a small lending market

In North Dakota the full-service restaurant is the first-ranked asset type, 1 of 39 within the state, even though the state itself ranks only 50 of 54 for restaurant loans. The pattern follows from the size of the state: the class logged 74 approvals over FY2017 to FY2026, adding up to $36.0 million. A 0.76x location quotient says restaurants account for less of North Dakota's approvals than they do nationally, while the median loan of $305,500 is 1.11x the national median for the class, so each North Dakota deal runs somewhat larger than the equivalent deal in other states. Cancellation and charge-off give no separate signal, which leaves program mix as the main feature worth studying.

A state where 504 matters

North Dakota restaurant lending leans on SBA 504 far more than most states do. SBA 7(a) carried 46 of the 74 loans and SBA 504 carried 28, which means a large proportion of borrowers finance a building or a land purchase instead of simply leasing space. Three certified development companies lead that side: Dakota Business Lending holds 11 loans worth $8.7 million, Lake Agassiz Certified Development Company holds 9 loans worth $7.2 million, and Lewis & Clark Certified Development Company holds 7 loans worth $7.3 million. On the 7(a) side, Old National Bank has 6 loans worth $2.2 million and First Western Bank & Trust has 5 worth the same. The middle half of loans runs from $101,425 to $697,250, and franchising is modest at 9.5%. Cass County leads with 22 loans, Burleigh County follows with 15, Grand Forks County has 7 and Ward County 6. Volume peaked at 11 loans in FY2017 and dipped to 4 in FY2019.

Cancellation after approval hit 9.5% at minimum for the FY2017 to FY2024 vintages in North Dakota, and could be as high as 11.1% if the undisbursed remainder never funds. Of the 36 North Dakota loans that funded in FY2017 to FY2021, 2.8% show a charge-off by now, while none had defaulted early. All three are floors, and open loans may still default.

Testing a North Dakota restaurant

Demand has to be dealt with first. Fargo, Bismarck, Grand Forks and Minot support very different concepts, and the energy-driven markets in the west can swing sharply with employment. The study should state which of those populations the restaurant draws from, and how seasonal weather affects the covers it serves in winter. Construction and equipment costs deserve special attention because the 504 share suggests owned property is common, so the study needs a land and building budget set against the typical loan near $305,500. Coverage of the debt payment ought to hold on a lower-volume case, since sales in smaller markets rest on repeat local traffic. An owner-occupied restaurant is usually appraised in two pieces, property and operating business, so the study should supply evidence for both.