MTF Enterprises, a 43-location Subway operator based in Pennsylvania, has filed for bankruptcy after a pair of merchant cash advance loans drained the company of cash.
The company, which declared Chapter 11 bankruptcy late last month, operates the locations in Pennsylvania, New Hampshire, Maine and Virginia. MTF also operates a childcare business throughout the Mid-Atlantic states.
According to court documents, the franchisee had $500,000 to $1 million in assets and $1 million to $10 million in liabilities.
Among the liabilities are $2.3 million in outstanding loans, including equipment leases, various loans and $761,000 in SBA loans.
MTF also owes $1.4 million to a pair of merchant cash advance (MCA) lenders. One carries an interest rate of 59.39%. The other 94.54%. Both advances were taken out last year.
According to court documents, one of the lenders, Ocean Funding, put several liens on MTF’s revenue collection from Square, Stripe and American Express late last year.
That MCA financing was the primary reason for the bankruptcy filing, the company said in court documents.
“The continued cash drain caused by the weekly and daily draws has been the primary cause of [MTF’s] financial problems,” Michael Fay, CEO of MTF, said in a court document.
This is not the first bankruptcy of a large franchisee caused by MCA lending. A Del Taco franchisee last year sought Chapter 11 for a similar reason. The fast-food chain operator Fat Brands, which filed for bankruptcy last week, also received MCA funds at one point but that was not the primary cause of that filing.
MCA funds are often necessary for businesses in need of immediate cash but can be dangerous because of the high interest rates and frequency of the payment, which can worsen companies’ financial positions.
The bankruptcy also comes as Subway and other restaurant chains combat weak sales and profitability. The fast-food sandwich giant in particular has seen a lot of franchisees close locations. More than a quarter of the chain’s locations have closed over the past decade. All of its locations are owned by franchisees.
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