A 22-unit Del Taco franchisee filed for bankruptcy this week, citing unexpectedly weak sales and its own decision to take out merchant cash advance financing.
Matador Restaurant Group, which is based in Greenville, South Carolina, filed for bankruptcy on Tuesday, declaring between $1 million and $10 million in assets and the same amount on liabilities.
But it also has more than $2.7 million in 10 separate merchant cash advances (MCA) with nine different entities.
Matador is owned by Red Door Brands, which also operates Little Caesars, McAlister’s Deli and Arby’s restaurants. The challenges at the Del Taco locations led to separate bankruptcy filings for each of those operations, though court filings say those bankruptcies will be kept separate.
None of those entities experienced the same issues as did the Del Taco operations, and each of those filings cited the problems with the Del Taco operation and the MCA financing.
According to court filings, the Del Taco restaurants began having problems in late 2024 due to a combination of “company growth, an unexpected decline in sales and rising operational costs.”
As these challenges mounted, the company said that it took out cash advances on the advice of its brokers as a “bridge” as it analyzed its cashflow issues.
Those loans only put the company further into the red. “The MCA loans put (Matador) into further financial distress due to the excessive fees, excessive interest rate and aggressive payback schedules,” the court filing said. Despite its efforts to cut costs, Matador has been unable to keep up with its MCA obligations.
Merchant cash advances can provide companies with quick funding during times of need, but they are among the riskiest sources of financing out there because companies pledge future revenues to pay them off. That makes MCAs expensive. A $50,000 advance could cost $75,000, for instance.
The advances can also create cash flow issues when providers of such financing take their cut before everything else.
The MCA providers in the Matador case began asserting their interest more aggressively over the past month, according to court documents.
Several of the creditors have filed a UCC-1 financing statement, indicating that they may have an interest in the operator. And one lien hold was placed on some of the company’s accounts, which made it difficult for the company to operate, according to court documents.
The franchisee then placed the restaurants into bankruptcy to stop the collection efforts and allow for a reorganization.
The bankruptcy filing highlights some of the challenges with Del Taco—and with the current financing environment.
The Mexican chain has about 600 locations and has struggled badly over the past year and a half. Same-store sales have fallen for five straight quarters. System sales declined 1.8% last year, according to data from Restaurant Business sister company Technomic.
The bankruptcy filing of a large and relatively new Del Taco operator in Colorado prompted the temporary closure of all but one of the chain’s restaurants in the state. The company itself is now reopening those locations.
Parent Jack in the Box, which acquired Del Taco for $585 million in 2022, is selling the brand and expects to find a buyer by the end of the year.
Meanwhile, some franchisees are finding it more difficult to get financing given some of the industry’s challenges lately, which may be leading some operators to turn to alternative sources to get them through difficult times.
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