What financial metric is used to determine the debt limit for a Noodles & Company franchisee?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
You and each Owner shall not, without our prior written consent, which shall not be unreasonably withheld, directly or indirectly borrow any money or incur any debt or liability (other than lease obligations for each Restaurant's land and building and trade payables in the ordinary course of business) to operate and maintain the Noodles & Company Restaurant, except as provided in this Section 3.04. At no time shall your total indebtedness outstanding at any time during any fiscal year exceed 4.0 times your earnings (determined in accordance with generally accepted accounting principles consistently applied) before interest, taxes, depreciation and amortization (EBITDA) minus any distributions to Owners for such fiscal year. You agree to provide within 90 days after the end of each fiscal year a statement certified by one of your executive officers setting forth the amount of your EBITDA and distributions to Owners (if any) for such year and your indebtedness at year end. Such debt shall have an initial amortization schedule of no more than 10 years from inception. You shall not extend, renew, refinance, modify or amend any debt or liability permitted by this Section 3.04 without our prior written consent, which consent shall not be unreasonably withheld.
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to the 2025 Noodles & Company Franchise Disclosure Document, a franchisee's debt is limited based on a multiple of their earnings before interest, taxes, depreciation, and amortization (EBITDA), minus any distributions to owners. Specifically, a franchisee's total outstanding indebtedness at any time during a fiscal year cannot exceed 4.0 times their EBITDA, less any distributions to owners for that fiscal year.
This restriction is in place to ensure the financial stability of the Noodles & Company franchise and to protect both the franchisee and the franchisor from excessive risk. The franchisee is required to provide a certified statement within 90 days after the end of each fiscal year, detailing their EBITDA, distributions to owners, and year-end indebtedness. This allows Noodles & Company to monitor compliance with the debt limitation.
The debt must also have an initial amortization schedule of no more than 10 years from inception. Furthermore, any extension, renewal, refinancing, modification, or amendment of permitted debt requires prior written consent from Noodles & Company, which will not be unreasonably withheld. This gives Noodles & Company some control over the franchisee's debt obligations and ensures they align with the overall financial health of the franchise system.
This type of debt limitation based on EBITDA is a common practice in franchising to maintain financial stability and prevent franchisees from becoming overleveraged. Prospective Noodles & Company franchisees should carefully consider this restriction and ensure they understand how it will impact their ability to finance and operate their restaurant.