Is Exit's bank credit facility subject to any financial covenants?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
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Long-term debt comprised the following at December 31:
| 2024 | 2023 | 2022 | |
|---|---|---|---|
| Notes payable, unsecured, non-interest | $ 90,000 | $ 420,000 | $ - |
| bearing, with varying repayment terms and | |||
| mature in 2028. | |||
| Notes payable, unsecured, with varying | |||
| repayment terms, bearing interest | |||
| between 4.00% and 6.00%, maturing | |||
| between 2027 and 2029. | 1,812,135 | 2,751,011 | 3,768,894 |
| 1,902,135 | 3,171,011 | 3,768,894 | |
| Less: current portion of long-term debt | (343,083) | (1,281,506) | (1,518,786) |
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company has a bank revolving demand facility with an authorized limit of $750,000 Canadian dollars, which was equivalent to $521,232 USD as of December 31, 2024. This facility bears interest at the bank's prime rate plus 1.00%, resulting in a rate of 6.45% as of the same date. The facility is secured by a general security agreement over all of Exit's property and an assignment of a guaranteed investment certificate amounting to $750,000 Canadian dollars, equivalent to $531,970 US dollars, which is categorized as a short-term investment.
Importantly, while the bank credit facility is subject to certain reporting requirements, it is specifically noted that it is not subject to any financial covenants. As of December 31, 2024, Exit had utilized the full $521,232 USD of the facility. In previous years, the utilization was $151,217 in 2023 and $0 in 2022.
For a prospective Exit franchisee, the absence of financial covenants on the bank credit facility could be seen as a positive sign, indicating less restrictive terms on Exit's borrowing arrangements. However, the franchisee should be aware that the facility is secured by all of Exit's property, which could have implications in the event of financial distress. Additionally, the franchisee should consider the reporting requirements associated with the facility, as these could indicate a level of scrutiny by the bank. The franchisee should also consider that the sub-franchisor agreements expire in 2033 but can be renewed for two additional ten-year terms.