Higher interest rates, which can benefit banks in some cases, haven’t been ideal for financial institutions in recent months. That’s according to Cristin O’Hara managing director and group head of Bank of America’s Restaurant Group, who spoke February 2 during a Restaurant Finance Monitor webinar.
“Bank rates weren’t keeping up with alternatives out there, and for a lot of banks, deposits they used to have started to migrate away,” O’Hara said. “If it’s not on our balance sheets, it’s money that we can’t lend against. I think the back part of 2022 was when we started seeing that hit more banks.”
John Hamburger, publisher of the Monitor and the webinar’s host, questioned if inflation and interest rates could go down in the near future.
“While rate increases may slow, we don’t anticipate them going away,” O’Hara said. “They’ll continue to affect all of us. We’ll see how that impacts our borrowers.”
Also joining the webinar was Benjamin Phelps, Bank of America managing director of consumer and retail mergers and acquisitions. In his comments, Phelps gave input on how the M&A market slowed in recent years, but will likely pick up soon.
“I think 2022 was a culmination of factors, from labor to inflation,” Phelps said. “Also, the debt markets and IPO markets had shut down. As you look toward 2023, that’s going to reverse course. We’re seeing moderation on food costs, inflation and labor. It’s going to give sellers the ability to feel good internally as they hit their numbers. As we go through the year, we expect sequential improvement of the financial markets and IPO markets.”
O’Hara reiterated, though, that some of the issues restaurants are dealing with, such as inflation, are improving at an incremental pace. As a result, it may take several more months for restaurant financing to reach an ideal level.
“It’s like whack-a-mole, one issue goes down and another comes up,” O’Hara said. “Another issue is the supply chain—some of those items just can’t make it across the ocean or in the right time frame. There’s still a lot that needs to calm down. If we can just get through these next two quarters, we’ll be in good shape.”
In the meantime, for franchisees who’re looking for financing, there are still options for potential owners.
“Traditional SBA lending is still quite active,” O’Hara said. “They can also go to some franchisee specific lenders. They offer higher interest rates, but they’re more flexible in brands they can serve.”