Was Chesters in compliance with all financial covenants of the Agreement as of December 31, 2023?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
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Maturities of long-term debt are as follows:
| 2024 | $ 1,628,607 | |------|-----------------| | 2025 | 250,475 | | 2026 | 270,041 | | 2027 | 291,143 | | 2028 | 312,041 $ 2,752,307 | The Agreement includes a revolving loan for maximum borrowings up to $1,000,000 that matures December 31, 2024. Interest is calculated at the greater of 5% or Prime rate (8.5% and 7.5% at December 31, 2023 and 2022, respectively) and secured by essentially all business assets. There were no amounts outstanding under the revolving loan as of December 31, 2023 and 2022. The revolving loan matures on December 31, 2024.
As part of the Agreement, the Company is required to comply with financial and nonfinancial covenants. Management believes it was in compliance with all covenants as of December 3
Source: Item 21 — **FINANCIAL STATEMENTS (FDD page 48)
What This Means (2025 FDD)
According to Chesters's 2025 Franchise Disclosure Document, Chesters was not in compliance with certain financial covenants for the year ended December 31, 2023. However, the document states that the bank granted a waiver for this noncompliance sometime during 2024.
For a prospective franchisee, this information indicates that Chesters has experienced periods of non-compliance with its financial obligations. While a waiver was obtained, it is essential to understand the reasons for the initial non-compliance and whether similar issues could arise in the future. This could impact Chesters's ability to support its franchisees or maintain consistent operations.
It would be prudent for a potential franchisee to inquire about the specific financial covenants that Chesters failed to meet, the reasons for the non-compliance, and the terms of the waiver granted by the bank. Understanding the details of this situation will help a franchisee assess the financial stability of Chesters and the potential risks associated with investing in the franchise.