When does the requirement for equity contributions from Owners for Noodles & Company restaurants apply, relative to the restaurant's opening?
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 3.07 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, franchisees may incur debt to develop a Noodles & Company restaurant, but there's a condition tied to equity contributions from the owners. Specifically, in connection with the development of each restaurant, the franchisee must receive equity contributions from the owners that are equal to no less than 25% of the restaurant's total development cost. This development cost includes all leasehold improvements, furniture, fixtures, and equipment. This requirement applies during the development phase of each Noodles & Company restaurant.
Furthermore, after the first anniversary of the opening of the first Noodles & Company restaurant under the agreement, the franchisee's total outstanding indebtedness at any time during any fiscal year cannot exceed 4.0 times their earnings before interest, taxes, depreciation, and amortization (EBITDA), minus any distributions to owners for that fiscal year. The franchisee must provide a certified statement within 90 days after the end of each fiscal year, detailing the EBITDA, distributions to owners, and year-end indebtedness.
In practical terms, this means that a prospective Noodles & Company franchisee needs to ensure that at least 25% of the initial investment for each restaurant comes from the owners' equity rather than debt. This requirement is in place before the restaurant even opens. After the first year of operation, the franchisee must also manage their debt levels to stay within the specified EBITDA ratio, which could impact their ability to borrow additional funds for expansion or other business needs. This debt must also have an initial amortization schedule of no more than 10 years from inception. Additionally, any modifications to this debt require Noodles & Company's prior written consent.