SBA 504 Quick Service Restaurant Feasibility Study

Franchise pads dominate 504 restaurant lending

SBA's 504 file counts 1,710 quick service restaurant loans from FY2017 to FY2026, with $1.28 billion approved. A majority, 51.0%, carry a franchise brand, so for most deals in this cell the franchisor's system shapes the underwriting as much as the operator's own history. No measure here clears our distinctness margin against the 504 program or against restaurant lending in both programs, so the page works as a baseline for franchise restaurant real estate financed through a CDC.

The median loan is $640,500, and the middle half reaches from $343,250 to $1.0 million: a pad building with a drive-through, or the purchase of an existing restaurant property. Volume jumped from 147 loans in FY2020 to 257 in FY2021, held near that level in FY2022 with $183.7 million, dipped to 145 in FY2023 and has recovered to 167 in FY2025 and 158 in FY2026, at $147.2 million. The Mortgage Capital Development Corporation tops the CDC list with 96 loans and $87.7 million. Florida Business Development Corporation is next with 90 and $77.9 million; behind them comes Florida First Capital Finance Corporation, Inc., with 64 and $74.6 million; Granite State Economic Development Corporation has 62 for a smaller $24.0 million, and WBD, Inc. 50 for $44.3 million. California has 183 loans, Florida 156, Illinois 100, Texas 92 and Arizona 81.

Losses are rare, and early when they come

The charge-off floor is 0.14% on the 719 restaurant loans funded over FY2017 to FY2021, and the five-year rate is the same 0.14%, so the few losses on record arrived in the first years after approval. Cancellation is the larger figure: 14.2% or more of FY2017 to FY2024 approvals never reached funding, and up to 18.4% counting undisbursed loans. For a lender, an early loss pattern points at the opening years: a unit that misses its sales ramp tends to fail quickly, while one that reaches its run rate tends to keep paying.

What a restaurant pad study has to test

No limitation line is attached. A feasibility study for a 504 quick service project has to test demand from traffic, visibility, access and the daypart the brand depends on; cost for land, site work and the prototype building; debt service coverage from a sales forecast drawn from comparable units in similar trade areas, after the franchise's ongoing charges; and the appraisal, which must address the dark value of a building designed for one brand, because that is what a lender recovers if the restaurant closes.