A Hopkinsville, KY franchisee adding a second unit can put the franchise fee and the equipment on a term loan and carry training payroll and stock with working capital, while the first unit’s cash flow supports both payments. Whether to fund it, and on what terms, is up to the independent funding partners who see the request through Rowanharbor Finance.
The post follows one invented quick-service restaurant franchisee: a second-unit fee and equipment on an 84-month loan, a 9-month loan for training wages and stock, and a check that the first unit’s monthly cash covers both payments while unit 2 is still short. Space work for the new unit is property work outside this site. All figures are made up.
Franchise fee and equipment for a second unit
Suppose an operator of one quick-service restaurant franchise signs for a second unit. In this invented case the franchisor charges a $27,500 fee for the new unit and the equipment package comes to $58,960, $86,460 together. Put on an 84-month term loan at a 10.05% annual rate, the invented package costs $1,437.57 a month, and seven years of interest add $34,295.88.
Interior construction, signage installation and utility work for the new space are property work and stay outside this site; the landlord or a separate source handles them. Equipment that has to be wired or plumbed needs that hookup done the same way. More on kitchen equipment terms is on the equipment financing page.
What the franchise agreement means to a funding partner
A second unit comes with its own agreement or an addendum to the first. A funding partner may read how many years it runs, the royalty and marketing fees taken from sales, any equipment the franchisor requires from named suppliers, and whether the franchisor must consent before the unit’s assets are pledged.
Royalties come off the top of sales before the loan payment does. In an invented month of $68,000 in sales at the second unit, a 6% royalty and a 2% marketing fee take $5,440, leaving $62,560; the $1,437.57 term-loan payment is 2.3% of that in this invented example. A franchisee comparing offers can work the payment against sales after royalty and marketing fees, not against gross sales.
Training payroll and the stock order for the second unit
New staff for unit 2 may train for weeks at the first unit while drawing pay. In this invented case 16 new hires train 28 hours a week for 3 weeks at $12.40 an hour, $16,665.60 of wages, and the stock order that fills the new unit’s shelves and freezers costs $9,875.
Together that is $26,540.60 in this invented example. A 9-month working capital loan of $26,600 at a 14.85% annual rate covers it with an invented payment of $3,141.43; over the 9 months the interest is $1,672.87.
A second unit funded from the first
The first unit is where both payments come from at the start. In this invented case it leaves $11,750 a month after its own costs, royalties and existing loan. The two new invented payments take $4,579.00, and if unit 2 runs $3,400 a month short for its first 4 months of trading, $3,771.00 a month is still left over in this example.
That leftover is the margin for error. A thinner one is a reason to ask for a longer term on the equipment or a smaller stock order. Limited-service restaurants (NAICS 722513) in Christian County, KY reported $22.4 million of annual payroll for 2023 in County Business Patterns.
By Rowanharbor Finance · Updated
