Subway Franchisee Files for Chapter 11, Blames Merchant Cash Advance Lenders for 'Improper' Revenue Seizure
This analysis was adapted from reporting originally published by Restaurant Dive. For daily updates on the restaurant industry, subscribe to the free Restaurant Dive newsletter.
The operator of 43 Subway sandwich shops has filed for Chapter 11 bankruptcy, placing blame squarely on a group of Merchant Cash Advance (MCA) lenders. In court documents, MTF Enterprises claims the lenders "improperly seized or interfered with the collection of sales revenue," a move it says pushed the franchisee into insolvency.
According to a declaration by MTF's CEO, Robert Fay, the weekly and daily payment demands from the MCA lenders became "the primary cause of the Debtor Entities' financial problems." Merchant Cash Advances provide businesses with quick capital in exchange for a slice of future sales, but critics argue their high fees and aggressive collection tactics can create a debt trap.
The bankruptcy filing casts a spotlight on the mounting pressures within Subway's franchise system. Recent franchise disclosure documents show the chain's U.S. footprint has contracted significantly, from 21,147 stores in early 2022 to 19,502 by the end of 2024. While Subway does not disclose per-unit sales, the shrinking store count suggests broader challenges with restaurant-level economics. Franchisees have also voiced strong opposition to the brand's remodel requirements, citing the heavy financial burden they impose.
MTF's case is not an isolated incident. Last summer, Matadoor Restaurants, a major Del Taco franchisee in the Southern U.S., also filed for bankruptcy after MCA loans strained its balance sheet. The restaurant sector at large is facing heightened scrutiny from creditors. Just last month, Fat Brands filed for Chapter 11 following escalating repayment demands, and in 2024, TGI Friday's bondholders seized control of most of the chain's assets.
The situation raises questions about the oversight of alternative small-business lending and the sustainability of franchise agreements in a challenging economic climate.
Voices from the Industry
Michael Torres, a franchise consultant in Chicago: "This is a tragic but predictable outcome. The MCA model is fundamentally at odds with the thin margins of restaurant operations. When a lender is taking a cut of daily sales regardless of profitability, it's a recipe for disaster. Franchisors need to provide better guidance and perhaps even vetting for these financing products."
Lisa Chen, a former Subway franchisee from Ohio: "It's heartbreaking to see. I sold my stores two years ago because the numbers didn't work anymore—between the remodels, food costs, and now this? The brand talks about support, but when operators are drowning, they're left to find any lifeline they can, even predatory ones. The system is broken."
David Reeves, an analyst at Mercantile Financial: "While the allegations against the MCA lenders are serious, bankruptcy is often a multi-faceted failure. It's crucial to examine the operator's sales performance and cost management. MCA financing is a tool; like any tool, it can be misused. This underscores the need for extreme due diligence by small business owners before signing such agreements."
Janice Powell, small business advocate, sharply criticizes: "This isn't financing; it's legalized predation. These lenders are vampires, sucking daily revenue until the business bleeds out. And where's Subway in all this? Collecting royalties while their franchisees are driven to ruin by loan sharks. The entire model protects the brand at the absolute expense of the operator. It's disgraceful."