What financial metric is used to determine the debt limit for a Noodles & Company franchisee, and how is it calculated?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
You may incur debt in connection with the development of Noodles & Company Restaurants hereunder, provided that (a) you will, in connection with the development of each such Restaurant, receive equity contributions from your Owners equal to not less than 25% of the total development cost of the Restaurant (which shall consist for this purpose of the cost of all leasehold improvements, furniture, fixtures and equipment) and (b) from and after the first anniversary of the opening of your first Restaurant hereunder, 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 2.05 without our prior written consent, which consent shall not be unreasonably withheld.
Source: Item 23 — RECEIPT (FDD pages 99–350)
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, a franchisee's debt is restricted based on their earnings before interest, taxes, depreciation, and amortization (EBITDA), minus any distributions to owners. Specifically, after the first anniversary of the opening of the first Noodles & Company restaurant, a franchisee's total outstanding indebtedness at any time during any fiscal year cannot exceed 4.0 times their EBITDA, less any distributions to owners for that fiscal year. This calculation is based on generally accepted accounting principles.
This restriction on debt is a protective measure by Noodles & Company to ensure the financial stability of its franchisees. By limiting the amount of debt a franchisee can incur relative to their earnings, Noodles & Company aims to reduce the risk of financial distress or default. This requirement helps to maintain the overall health and reputation of the Noodles & Company brand.
To ensure compliance, Noodles & Company requires franchisees to provide a certified statement within 90 days after the end of each fiscal year. This statement, certified by an executive officer, must detail the franchisee's EBITDA, distributions to owners (if any), and total indebtedness at year-end. Additionally, any debt incurred must have an initial amortization schedule of no more than 10 years from its inception. Franchisees must also obtain prior written consent from Noodles & Company before extending, renewing, refinancing, modifying, or amending any permitted debt, which consent will not be unreasonably withheld.