A loan payment does not care whether a new location is having a good month or a bad one. It is due either way. Before signing for the money, the question to answer is not what the location makes in a full month. It is what the location makes in its worst month, and whether the plan has enough cash to cover the difference.
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Start your applicationWhat does a loan payment on a new location actually cost per month?
In a worked example at an illustrative ten percent annual rate, $380,000 over 10 years runs about $5,020 a month, and $90,000 over 5 years runs about $1,910 a month, for a combined payment of about $6,930 a month.
That combined figure, about eighty-three thousand dollars a year in the worked example, is the number that has to sit against whatever the new location actually makes, month by month, not against the plan's best month.
Lenders call this debt service. Rates move, and the real rate always comes from the lender, not from a worked example. But the shape of the exercise does not change: take the payment, and put it against the location's pro forma, month by month.
What happens when the payment is checked against a slow month?
In the worked example, the payment is covered comfortably once the location is full, thinly once it is close to full, and not covered at all in the early, slower months, when the location is still losing money before the payment even applies.
The lesson's table runs three months of the pro forma against the payment. Once the location is full, profit comfortably clears the payment. In the location's bad case, nearing a full month, profit barely clears the payment, which the lesson calls thin, and it suggests asking the lender what cushion above the payment they want to see. In the early months, before the location has ramped, the location loses money before the payment even enters the picture. Nothing in the business covers that loss. Cash has to.
What covers the gap in the early, losing months?
Working capital set aside before the loan closes is what covers the gap, not hoped-for sales.
The lesson walks a bad case with the payments added in. Four months losing $7,500 before the payment, plus the $6,930 payment, each month: $57,720 over those four months. Four months losing $2,500 before the payment, plus the payment: $37,720. Four months where $2,500 of profit does not cover the $6,930 payment: $17,720. Add it up and the bad case runs short for a full year, about $113,000 by month twelve. Working capital built for this carries it, with a little left over.
The point is not the exact figures of one worked example. It is that a bad case with payments in it runs short for longer than a bad case without them, and the plan has to fund that, not hope around it.
Results are not typical and will vary with your business, your market, your team and how much of the work you actually do. Client figures on this site come from recorded interviews and are dated. Nothing here is a guarantee of revenue, profit or growth.
What if the bad case does not fit inside the plan?
There are four honest moves: put in more of the owner's own equity, shrink the project, take a longer loan term, or set a dated plan to wait.
- More of the owner's own equity, from above the reserve the first location keeps, which shrinks the loan and its payment.
- A smaller project, such as a second-generation space that was already a restaurant, which lowers the build-out cost.
- A longer loan term, which lowers the monthly payment but costs more interest over the life of the loan.
- Not yet, with a date attached. A dated plan to wait is still a decision, not a delay.
What none of the four moves includes is hoping the slow months turn out better than the pro forma says. The lesson is blunt about that: you never fix the bad case by hoping harder.
Why does the first location's reserve matter to the second location's loan?
Because equity for a new location has to come from above the first location's reserve, never out of it, or both locations end up carrying the risk of one bad month.
A cash forecast built to run a location already holds back a reserve for that location's own fixed costs. Pulling from that reserve to fund a second location's equity means the first location can no longer survive its own bad month. That is not a second location funded safely. It is one working location put at risk to open another.
This is one reason the whole project gets costed before a single site is looked at: the build-out, the equipment, the pre-opening costs, a contingency on top, and working capital for the ramp, all added up before anyone asks a lender or an investor for money.
Owners who want to see how this plays out past the spreadsheet can look at case studies of multi-location owners who went through this kind of expansion math before opening again.
What should a lender see before any money moves?
A lender should see the whole project costed, where the money is coming from, and what the loan payments do to the new location's monthly numbers in the bad case, not just the best case.
The deck that goes to a lender is built on the same numbers used to decide whether to open at all: the pro forma's month-by-month profit, the payment the loan would add, and the working capital that covers the gap while the location ramps. A lender reading a bad case that has already been funded is a different conversation than a lender reading a best case with nothing behind it.
Related reading: how a pro forma gets built from an existing location's own numbers is covered in how long does a new restaurant location take to reach full sales, and what the whole project costs line by line is covered in what does it cost to open a new restaurant location line by line.
