Acquiring Four Franchised Quick-Service Restaurants in Wake County, North Carolina with SBA 7(a): A Lender-Grade Model Study

Model study: an illustrative feasibility analysis built on public data for Wake County, North Carolina; not a client engagement.

Project summary

All figures in this table are model results or model assumptions.

The credit question

A lender on a multi-unit restaurant acquisition is not financing real estate. The sites are leased, the equipment has modest liquidation value, and about 81% of the modeled purchase price is intangible. With collateral unable to carry the loan, the decision rests on whether the seller's cash flow survives the change of ownership and covers new acquisition debt with room to spare. That reduces to five questions:

1. Is the historical earnings figure real? Price and loan size both key off adjusted EBITDA of $749,250. A $50,000 change in that figure moves debt capacity by roughly $250,000, and SBA requires the coverage test to be met on the last fiscal year or the average of the last two, on a historical or adjusted basis; projections must be evaluated but cannot be relied on to meet it [1].
2. Is coverage spread across the units or concentrated? A unit producing 14% of four-wall EBITDA becomes a cash drain if it loses volume, because its rent continues.
3. Will the franchisor approve the transfer, and on what terms? Approval usually brings a fee, a remodel obligation and often a new form of agreement with higher fees.
4. Does the market support the unit volumes? Wake County is growing fast, but its count of limited-service restaurants has barely moved since 2019 while payroll per employee has climbed. The question is less demand than margin.
5. Can the buyer's household absorb a bad year? Global cash flow shows whether a business shortfall would also be a guarantor shortfall.

Location and county economy

Population and growth

Wake County added 127,879 residents between the April 2020 estimates base and July 2025, an 11.3% increase, compared with 7.2% for North Carolina as a whole [2]. The 2025 vintage shows growth of 27,760 people in the year to July 2025, or 2.26%, with net migration contributing 21,392 of that and natural increase 6,369 [2]. Growth has been steady rather than a single surge: annual additions ranged from 19,983 to 28,845 in each year from 2021 to 2025 [2]. Over the prior decade, the county grew from 900,993 at the 2010 census to 1,112,795 in July 2019, about 23.5% in nine years [3].

Percentage changes are computed from the Census figures.

Why it matters. Quick-service restaurants are a frequency business, and a county adding about 25,000 residents a year supports price increases without traffic loss. Growth lands unevenly, though, and competitors follow rooftops, so a lender should read it as support for the existing revenue base, not as a reason to assume volume increases.

Households and income

The American Community Survey shows 508,700 Wake households in 2025 (±5,072) [4], up from 439,911 in 2021 (±4,545) [5], a 15.6% increase or about 3.7% a year (computed). Median household income was $105,023 in 2025 (±$4,603), against $84,780 nationally and $77,638 for North Carolina [6]. The 2021 median was $91,299, so the nominal gain over four years was 15.0% [7]. In 2025, 52.9% of Wake households reported incomes of $100,000 or more and 35.1% reported $150,000 or more (computed from [8]). Owner-occupied households made up 61.6% of the total [9], family households 64.7% [4], and the county's median age was 37.4 years against 39.5 nationally [10].

Shares are computed from the ACS counts.

Why it matters. The model assumes that restaurant spending rises with household income, so Wake's skew toward upper incomes lifts the demand estimate below. The same affluence raises the wage needed to staff a restaurant.

Employment and commuting

County Business Patterns counts 556,250 paid employees at 33,873 establishments in Wake County in 2023 [11], up from 497,013 employees in 2019 [12], an 11.9% gain (computed). The largest employing sectors in 2023 were health care and social assistance (77,532), professional, scientific and technical services (72,675), retail trade (65,004) and accommodation and food services (61,071), followed by construction (37,260) and finance and insurance (27,718) [11]. Restaurants and other eating places (NAICS 7225) employed 51,021 people, 9.2% of all paid employment in the county [11].

Among workers who commute, 63.5% travel less than 30 minutes, 24.5% travel 30 to 44 minutes and 12.0% travel 45 minutes or more (computed from [13]).

Why it matters. The diversified employment base limits single-employer risk. The restaurant competes with retail and health care support roles for hourly staff. Short commutes mean lunch traffic depends on employment near each site, which the lender should check against the seller's daypart sales.

Market analysis

Demand drivers

The demand case rests on one sourced driver, household formation: covered above, it added about 17,000 households a year between 2021 and 2025 (computed from [5][4]). Spending per household and menu price growth are model assumptions, set out in the demand method and the assumptions table.

A lender should read transaction counts in the seller's point-of-sale reports, because price-led sales growth can mask falling traffic.

Existing supply

County Business Patterns is the most consistent public count of restaurant supply by county. In Wake County, limited-service restaurants (NAICS 722513) numbered 984 establishments in 2023 [11], against 988 in 2019 [12]. Employment in the category rose from 21,302 to 21,922, only 2.9%, while annual payroll rose from $325.8 million to $436.5 million, a 34.0% increase [12][11]. Payroll per employee rose from $15,294 to $19,913 (computed).

Supply has not kept pace with population: residents per establishment rose 8.3%. Labor has become far more expensive, with payroll per employee up 30% in four years. Payroll per establishment averaged $443,637 in 2023 (computed from [11]); at an assumed 26% to 30% payroll-to-sales ratio, that implies average sales of $1.48 million to $1.71 million, which brackets three of the four modeled units.

County Business Patterns does not show pipeline, and no county pipeline source was used here. New competition is therefore treated as a unit-level risk, with the lender's site visits recording new pads near each unit.

Demand method: trade-area spending and fair share

The appropriate demand method for an existing portfolio is a spending-pool test: estimate how much county households spend at limited-service restaurants, then check whether the portfolio's sales are a plausible share. The build uses three inputs:

1. Food-away-from-home spending by income quintile, an illustrative assumption: $1,556, $2,389, $3,699, $4,999 and $8,108 per consumer unit from lowest to highest quintile.
2. Wake County's household income distribution, 2025 ACS [8], allocated by the model to the national quintile bands by linear interpolation within the ACS income brackets. The resulting shares are a model estimate.
3. The limited-service share of food away from home, set at 49.9%, about half. This is a model assumption; it should be checked against the CPI relative importance weights for limited-service and all food-away-from-home spending.

The pool of $1.28 million per establishment sits below the payroll-implied range, which is expected given in-commuters, visitors and survey under-reporting. The pool is not a ceiling on unit sales, but it shows the portfolio's average unit runs well above the average establishment, which the seller's statements must prove.

Forecast

Assuming households grow 2.0% a year (near the 2.06% compound population growth since the April 2020 base, computed from [2]) and spending per household 3.0%, the limited-service pool reaches about $1,455.7 million in 2028 (Year 2) and $2,160.5 million in 2036 (Year 10). Portfolio sales grow only with price, so its share falls from 0.51% to 0.42%. The model does not count on capturing county growth, only on holding traffic. All forecast figures are model results.

Site and technical

Site requirements and lease position

With no real estate in the transaction, the site analysis is a lease analysis: remaining term and tenant options, rent escalations, CAM history, assignment and landlord-consent provisions, and relocation clauses. SOP 50 10 8.1 applies a lease test when the borrower operates in leased space and the lesser of $500,000 or 30% of the proposed collateral consists of leasehold improvements, fixtures, machinery or equipment attached to the leased real estate: for a 7(a) loan the lease term, including renewal options exercisable only by the borrower, should equal or exceed the loan term, and an assignment of lease and landlord's waiver should be obtained [1]. If the lender cannot obtain the assignment or waiver, the lease term including borrower-only options must equal or exceed the loan term [1]. The model treats the test as applying to each unit. Unit D's 8.8% occupancy ratio, the highest rent on the lowest sales, is the first sign it is the weakest unit.

Permits and regulatory transfer

North Carolina food establishment permits are not transferable: on a change of ownership the new owner or lessee must apply for a new permit, and a transitional permit may be issued to allow the correction of construction and equipment problems that do not represent an immediate threat to public health [14]. The statute sets a $120 permit fee and allows a $250 plan-review fee for prototype franchised or chain facilities [14]. Each unit needs a permit application timed for day-one operation, and the reimage work will need municipal building permits, which the model does not detail.

North Carolina's minimum wage is $7.25 an hour [15], but the binding constraint is the market: payroll per employee at Wake limited-service restaurants averaged $19,913 in 2023 (computed from [11]).

Construction approach: franchisor reimage

The transfer approval is modeled as requiring a full reimage of Units C and D ($150,000 each, three-week closures) and a refresh of Units A and B ($40,000 each), $380,000 funded at closing. Reimaged units gain 4% in sales (half in Year 1), and A and B are refreshed again in Years 6 and 7 at $160,000 a year from cash flow. These costs are assumptions; a lender should require fixed-price bids and hold the funds in controlled disbursement.

Schedule

Timings are model assumptions.

Development budget and sources and uses

Development budget

The purchase price is allocated, for tax and collateral purposes, as $600,000 to furniture, fixtures and equipment and $2,600,000 to intangible assets including goodwill and franchise rights (assumption pending the business valuation). SBA may announce temporary upfront fee changes for a specific fiscal year through an Information Notice [1], so the fiscal 2027 fee should be confirmed at application.

Sources and uses

All amounts are modeled. The buyer's cash alone exceeds the 10% minimum injection that applies to an Initial Acquisition, which cannot be reduced or eliminated [1]. Seller debt that is subordinated and on full standby, with no payments of principal or interest for the term of the 7(a) loan, may count as equity, and such limited sources may provide no more than half of the required injection [1]; standby debt may accrue interest [1]. The standby note is not needed to meet the minimum, but it keeps the seller financially invested in a clean handover. The SBA guaranteed portion is $2,606,250 (75% of the loan, the maximum for loans over $150,000 [17]), and the loan and guaranty both sit below the $5,000,000 loan and $3,750,000 guaranty limits [17].

Revenue build and operating expenses

Normalizing the seller's earnings

The first step is to convert the seller's reported income into the earnings figure the lender will test. The model's normalization is shown below; every adjustment would need to survive a quality-of-earnings review, which SBA requires to reconcile accountant-prepared statements, tax returns, internal statements and IRS transcript data and to include a cash proof [1].

All figures in this table are modeled. The add-backs total $95,250, or 12.7% of adjusted EBITDA. That is within a range a lender would examine closely but not reject; the personal-expense add-back is the one most often reduced in diligence. If the QoE disallowed both the legal and personal-expense add-backs, adjusted EBITDA would fall to $714,000 and historical DSC to 1.31x, still above the 1.25x threshold. SBA also requires that adjustments to owner compensation be supported by a global cash flow analysis that meets a 1:1 DSC on a global basis [1].

Store-level P&L and four-wall EBITDA by unit

Four-wall EBITDA is unit sales less all costs incurred inside the restaurant: food and paper, labor and benefits, royalty, advertising fund contribution, occupancy and other operating costs. It excludes above-store overhead. It is the right lens for a multi-unit file because it shows which units carry the debt.

All figures in this table are modeled (dollars).

Above-store G&A of $255,000 (buyer's market salary of $120,000, an area manager and payroll burden of $75,000, accounting, payroll processing and technology of $40,000, and insurance and other overhead of $20,000) reduces four-wall EBITDA of $1,004,250 to portfolio EBITDA of $749,250, a 10.6% margin.

The table explains the credit structure. Units A and B produce 63% of four-wall EBITDA on 55% of sales. Unit D produces 14% of four-wall EBITDA on 21% of sales, with prime cost at 63.0% and occupancy at 8.8%. If Unit D's volume fell by a fifth, its four-wall contribution would fall from $140,250 to roughly $40,000, because its rent and fixed labor would continue while about 35 cents of each lost sales dollar came off the bottom line. That asymmetry, not the portfolio average, is what drives the stress tests below.

Prime cost and occupancy against lender ranges

Lenders who finance franchised restaurants compare each unit with ranges they carry from their own portfolios and from franchise disclosure documents. The ranges below are stated as typical lender screening ranges; they are assumptions, not sourced industry statistics.

Royalty, advertising and the use of FDD Item 19

The model uses a 5.0% royalty and a 4.0% advertising fund contribution, a combined 9.0% of sales. These are assumptions for a generic brand; the actual rates come from the buyer's franchise agreements and the franchisor's Franchise Disclosure Document. The FTC Franchise Rule requires the FDD to tabulate other fees the franchisee must pay, including royalties and advertising, with their amounts and due dates [18].

Item 19 is where a franchisor may disclose financial performance representations, which require a reasonable basis and written substantiation [18]. A lender uses it as a benchmark (where do the four units sit in the system's distribution?), as a normalization test (a food cost three points below the system deserves a question) and as a source of cost ratios. The rule lets a franchisor that wishes to disclose only the actual operating results of a specific outlet being offered for sale give that information to potential purchasers of that outlet [18], which is better data for an acquisition. Item 19 cannot replace the seller's historical statements, which drive the coverage test [1]. Item 20 shows outlet counts and transfers by state, and Item 21 the franchisor's financial statements [18].

Franchisor transfer approval and remodel requirements

FDD Item 17 summarizes the agreement's provisions on transfer by the franchisee, franchisor approval of transfer and the conditions for approval [18]. They set five credit items: written approval of the buyer; a waiver of any right of first refusal; the transfer fee ($15,000 per unit modeled); the remodel scope ($380,000 modeled); and whether the buyer assumes the existing agreements or signs current-form agreements, which may carry higher fees (a one-point rise in both royalty and ad fund cuts Year 2 DSCR from 1.47x to 1.20x). The lender should also obtain the SBA Addendum to Franchise Agreement (SBA Form 2462), listed as a related document on SBA's Franchise Directory page [16].

Ramp and expense structure

Year 1 carries a 2.0% transition dip, the C and D closures and half of the reimage lift; from Year 2, prices rise 2.75% a year and traffic is flat. Expenses behave as follows:

• Food and paper, royalty and advertising vary fully with sales.
• Other operating costs are split between 6.0% of sales (card fees, supplies, part of utilities) and a fixed component equal to 3.5% of TTM sales growing 3.0% a year.
• Labor is 60% variable with traffic and 40% fixed, and grows with a 3.5% wage index, so prime cost creeps from 60.3% in Year 2 to 62.1% in Year 10.
• Occupancy is fixed and escalates 2.0% a year.
• G&A grows 3.0% a year.
• Maintenance capex is 1.0% of sales a year, plus the refresh of Units A and B in Years 6 and 7.

In Year 2, four-wall EBITDA is $357,505 at Unit A, $286,507 at B, $258,811 at C and $162,052 at D (10.5% margin). These are model results.

Assumptions

10-year pro forma

All figures are modeled. Portfolio EBITDA here is the operating business's equivalent of NOI: it is after rent, because the sites are leased, and before interest, taxes, depreciation and amortization. All figures are pre-tax and in nominal dollars. Cash flow after debt service is after maintenance capex and the Year 6 and 7 refresh.

Year 1 is the thinnest year because closures and the transition hit before the lift arrives. From Year 2, EBITDA grows under 1% a year despite 2.75% sales growth, because wage inflation absorbs most price increases: a realistic base case for a mature portfolio in a tight labor market.

Debt structure

Why the structure is this shape. Ten-year amortization of goodwill makes debt service heavy: $545,312 a year, 15.7% of the original balance. That is why a 4.27x multiple yields historical DSC of only 1.37x; each further 0.25x of multiple (about $187,000) would add about $29,000 of debt service and cut DSC by about 0.07x. The cash injection sits above the 10% minimum, which cannot be reduced [1], so the closing survives if part of the cash is disallowed, and the standby note stays well inside the limited-source cap [1]. A seller note not on full standby would count as debt in coverage. A two-point prime increase from Year 2 would lift Year 2 debt service to about $588,000 (DSCR 1.36x); a fixed rate is available, and SBA periodically publishes the maximum allowable fixed rate in the Federal Register [17].

DSCR and break-even

DSCR by year

All figures in this table are modeled. Total debt service over ten years is $5,453,119, of which $1,978,119 is interest and $3,475,000 is principal.

The SBA test for an Initial Acquisition is historical coverage of at least 1.25:1 on the last fiscal year or a two-year average, on a historical or adjusted basis, and the lender may not rely on projections to meet it [1]. Adjusted TTM EBITDA of $749,250 over debt service of $545,312 gives 1.37x, a margin worth about $67,000 of EBITDA.

Year 1's 1.20x reflects the closures and transition dip; it does not count for the SBA test but sizes the working capital, and the $200,000 reserve covers more than four months of debt service. The 1.08x after-capex ratio in Years 6 and 7 is a structuring issue: a reserve of about $6,700 a month from Year 2 to Year 5 funds the $320,000 refresh.

Break-even

Break-even is measured as the Year 2 volume decline (traffic, with prices and the cost structure held as modeled) that reduces coverage to a given threshold.

All figures in this table are modeled. This is the most important table in the file. The portfolio absorbs a 9.6% volume decline before EBITDA fails to cover debt service, but only 4.5% before coverage drops below 1.25x, because each lost sales dollar costs about 36 cents of EBITDA. The Year 2 1.25x break-even of $7.04 million roughly equals TTM sales, so the forward cushion depends on price increases and the reimage lift; the seller's monthly history should show traffic held through recent price increases.

Global cash flow with the buyer's other income

Global cash flow combines the business with the guarantor's household; SBA requires the financial analysis to include a global cash flow analysis that meets a 1:1 DSC [1]. The modeled buyer draws a $120,000 market salary from the business (already deducted inside G&A), has a spouse earning $92,000 in wages and owns one rental property producing $14,400 of net operating income. Personal debt service totals $56,400 a year: home mortgage $34,800, auto $8,400, rental mortgage $9,600 and other consumer debt $3,600. Household living expenses are $72,000. Personal taxes are estimated at a 24% effective rate on wages, rental income and the business's taxable income after interest and amortization of the acquired assets (equipment and reimage over 7 years, intangibles and transfer fees over 15 years, $317,333 a year in total).

All figures in this table are modeled. Global coverage stays above 1.0x in every case modeled, including Year 1 with no spouse income (1.14x) and Year 2 with Unit D dark (1.06x), so it clears SBA's 1:1 global standard. Household income cannot rescue a failing business, but personal obligations do not compete with the loan for business cash. The lender would verify the spouse's wages, the rental and the personal financial statement.

Returns

All figures in these tables are modeled. The levered return is high because $500,234 of cash controls a $4.1 million project. It is pre-tax, excludes the buyer's labor (paid separately at $120,000), and understates exposure, since the personal guaranty stands behind the full loan. The unlevered 16.4% is the better measure and barely moves with the exit multiple, because most value comes back as annual cash flow. The exit at 3.75x is below the 4.27x entry, and with the loan amortized by Year 10 it protects equity, not the loan.

Sensitivity and stress tests

Two-way grid: Year 2 DSCR by volume and note rate

The grid applies a volume change from Year 2 onward and a note rate held for the full term.

All figures in this table are modeled. Volume matters far more than rate: three points of rate move Year 2 DSCR by 0.17x, while 5% of volume moves it by about 0.24x.

Downside scenarios

All figures in this table are modeled. The scenarios rank the risks:

• Unit D is the largest point of failure. Dark with rent due, it drops portfolio coverage below 1.0x. Mitigants: lease termination rights, a holdback tied to Unit D, and a price that does not rest on its contribution.
• Sustained labor inflation is the slow threat, eroding coverage to 0.75x by Year 10. The 30% rise in payroll per employee from 2019 to 2023 (computed from [12][11]) makes this realistic; the mitigant is demonstrated pricing power.
• Transfer terms are a removable pre-closing risk. Two points of higher fees cut Year 2 coverage to 1.20x and Year 1 below 1.0x, so final terms must precede approval.
• Rate and commodity shocks are survivable, at 1.36x and 1.13x respectively.

Program compliance

Risks and mitigants

Model determination

Financeable as structured, subject to conditions. The modeled acquisition meets the SBA change-of-ownership tests: 12.10% buyer cash against a 10% minimum, a standby note inside the limited-source cap, and adjusted historical coverage of 1.37x against 1.25x [1]. Loan and guaranty sit within regulatory limits, the rate is below the cap [17], and global coverage is 1.43x in Year 2. Wake County's population and household growth, incomes and flat count of limited-service restaurants support the volumes [2][4][11].

The weak points are a 1.25x break-even only 4.5% below Year 2 volume, Unit D's fixed costs, and labor costs rising faster than menu prices. None defeats the credit, but each shapes the conditions a lender reviewing a file like this would likely set:

1. A lender-commissioned quality-of-earnings report supporting adjusted EBITDA of at least $682,000 (the 1.25x level), with the loan re-sized if it does not.
2. An independent business valuation supporting the $3,200,000 purchase price.
3. Written franchisor approval of the transfer, waiver of any right of first refusal, final transfer fees, final remodel scope and the form and term of the franchise agreements, with the model re-run if the royalty or advertising rate changes.
4. Confirmation that the brand is listed on the SBA Franchise Directory and an executed SBA Addendum to Franchise Agreement.
5. Lease assignments with landlord consent and terms, including borrower-only options, of at least ten years for each unit, or a shortened reliance period for any unit that falls short.
6. Fixed-price remodel bids and controlled disbursement of the $380,000 remodel budget.
7. Verification of the buyer's $500,234 cash injection from unborrowed sources and the standby agreement for the seller note.
8. A capital reserve for the Year 6 and 7 refresh, funded monthly from Year 2.
9. Quarterly unit-level P&L reporting and an annual portfolio DSCR covenant.
10. New food establishment permits in the buyer's name for each unit before or at closing.

With those conditions met, the modeled acquisition is a reasonable SBA 7(a) credit: repayment comes from four unit cash flows in a growing county, the buyer has real cash at risk, and the cases that break coverage can be addressed before closing.