Restaurant Loans, Franchise vs. Non franchise

However,  many CMBS lenders will not consider restaurant mortgages if the business is tied to a franchise agreement.First of all CMBS lenders (commercial mortgage backed securities) are a nontraditional source of capital that due to their “back office” structure have produced some of the most creative and aggressive restaurant loan options in the industry.   

For example 85% financing and 30 year fixed rates on restaurants, with rates right in line with bank financing.  They’re able to do this because the individual loans are pooled together and sold to investors in the form of bonds, which essentially reduces the investors risk due to the diversification of loan structure, building type, and geography.  CMBS lenders do not like the franchise agreement between the franchisee and franchisor. 

In essence, these agreements are very cumbersome and limit the rights of the lender in case of borrower default.  It becomes more difficult for the commercial real estate lender to go after the collateral  to get paid back.  So, many of these creative restaurant loan options are not available to the borrower.If your in a franchise agreement now, and own the property your business occupies, then consider the SBA 7a loan for your refinance.  Many borrowers are under the wrong impression that they cannot refinance with SBA loans. 

The exception are if the new loan will save the borrower 20% on their existing mortgage payment (this is on a cash flow basis), existing loan floats, has a balloon on it or if their existing interest rate will be reduced by 2% or more (keep in mind that most rates are currently in the 6%’s) from the proposed 7a loan refinance.Also, another major misperception about the SBA 7a loan is that it’s always a floating rate loan.  99% of the time this is accurate. 

However there are a few sources that offer this program as a 5 year fixed 25 year amortization loan.  If, and going back to the original point, you own your property and run a non franchise restaurant out of it, then you’ll have all three options available to you – CMBS, SBA and conventional.  With CMBS loans you will have the option of 30 year amortization loans, rates fixed for as long as 30 years, loan to values as high as 75% on refinance and 85% on purchases.