According to Nation’s Restaurant News, “While access to capital remains difficult to obtain for restaurant operators looking to expand, especially in a heavily franchised segment like pizza, two executives offered creative ways to secure funding during a panel discussion at the Pizza Executive Summit this week in Chicago.”

“Mike Mrlik, chief executive of Austin, Texas-based Gatti’s Pizza, said financing for franchise growth has become harder to come by than ever. Not only did loans to restaurant businesses require more equity and last for shorter terms, Mrlik said, but the industry’s ‘big three’ lenders — GE Capital, Bank of America, and Wells Fargo — cut way back on financing restaurants. ‘The last two years were the toughest ever for franchise concepts,’ Mrlik said. Both Gatti’s and San Ramon, Calif.-based Straw Hat Pizza, whose president, Jonathan Fornaci, also was a speaker on the “Finance and Franchising 2010” panel, responded to a lack of traditional funding in aggressive, untraditional ways in the past few years.

Targeting landlords

“’Landlords do not want empty buildings,’ Mrlik said, which is why they’re willing to renegotiate longer lease terms and to get money back from landlords to update, modernize or reimage their units. They also are receptive to deals for tenant-improvement dollars, he added. In a unit in Austin, Gatti’s agreed to pay a higher guaranteed rental rate than market value in exchange for a large tenant-improvement check from the landlord. Upgrades financed by that TI check improved sales to the point where the franchisee could pay off in 22 months the whole loan needed to get the restaurant open. Gatti’s has 131 restaurants in 11 states, and the system is 85-percent franchised, Mrlik said. The chain has three different store prototypes, he added, including a delivery model, a pizza-buffet model and a family-entertainment model.”

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