# Second-Location Loan Affordability - Verdict **Date:** 2026-08-13 **Prepared by:** UnifiedAnalyst (automated analysis - review before use) --- ## Verdict: DO NOT AFFORD The loan terms you asked for ($250,000 over 10 years) are well-structured in isolation - the monthly payment is reasonable at $2,887.27, and total interest over the loan life is $96,472.88. But the loan cannot be supported by the existing business today: revenue is $62,000/month and operating costs are $62,860/month, which means the existing location is currently operating at break-even. There is no earnings cushion to absorb a $2,887/month debt payment, let alone a +200 bps rate stress. The single line driving the call is payroll at $31,000/month - 50% of revenue. Industry benchmarks for restaurant / food-service operators run 28-35% of revenue. Cutting payroll toward the benchmark (or offsetting it with second-location revenue) is what flips this from DO NOT AFFORD to AFFORD. --- ## At a glance | Item | Value | | --- | --- | | Loan principal | $250,000 | | Loan term | 10 years (120 monthly payments) | | All-in interest rate | 6.88% (Fed Funds 3.63% + 325 bps spread, working assumption) | | Monthly payment (base rate) | $2,887.27 | | Monthly payment (+200 bps stress) | $3,150.68 | | Total payments over loan life | $346,472.88 | | Total interest over loan life | $96,472.88 | | Existing monthly revenue | $62,000 | | Existing monthly opex | $62,860 | | Existing monthly EBITDA | $0 | | Existing debt service | $0 | | Opening cash balance | $40,000 | | Closing cash W13 (no loan) | $28,758 | | Closing cash W13 (with loan) | $14,449 | | Runway impact of loan | -$14,309 over 13 weeks | | Break-even revenue for new location | $9,624/month (15.5% of existing) | --- ## The three affordability tests 1. **Debt Service Coverage Ratio (DSCR): FAIL.** DSCR = existing EBITDA / total monthly debt service. With EBITDA of $0 and a $2,887 payment, DSCR is 0.00x at the base rate and 0.00x at +200 bps. The 1.25x threshold is unmet by an infinite margin. A lender will not approve the loan on these numbers. 2. **13-week runway: PASS (marginal).** Without the loan, weekly net is -$199 ($14,309 receipts - $14,507 payments). With the loan, the two monthly payments ($2,887 each) hit at weeks 5 and 9. The closing cash at week 13 is $14,449 vs $28,758 without the loan. No negative week in the horizon, but the buffer is thin. One bad week of collections tips it below zero. 3. **Break-even revenue for the new location: very achievable.** The new location has to generate $9,624/month of revenue (assuming 30% contribution margin) to cover its own loan payment. That is 15.5% of existing-location revenue - well within reach for a second location doing roughly half the volume of the existing one. --- ## What "DO NOT AFFORD" rests on - Existing EBITDA is $0 because payroll at $31,000/month is 50% of revenue. Cut payroll to 35% of revenue (about $22,000/month) and EBITDA becomes ~$9,000/month, DSCR jumps to 3.1x, and the with-loan runway closes at ~$44,000 in week 13. The loan becomes supportable. - The verdict does not rest on the rate: the loan survives a +200 bps shock (payment moves from $2,887 to $3,151). It rests on the opex structure. - If a partner, owner draw, or already-paid-out party reduces payroll by $9,000/month without losing output (which would be unusual), the loan is affordable. --- ## What the model does NOT cover - **Second-location pro forma.** Steady-state revenue, buildout cost, lease, staffing, and ramp shape are not on file. The break-even figure ($9,624/month) uses a 30% contribution margin as a working default. Replace with the buildout, lease, and staffing plan from the new site. - **Lender-quoted rate.** The 6.88% all-in rate is Fed Funds (3.63% as of 2026-07-01) plus a 325 bps working spread typical of SBA / small-business CRE loans. Replace with the lender's actual quote when available. - **Existing debt service.** Assumed $0. If the existing location carries a current loan, capital lease, or equipment finance payment, add it to Assumptions!C22 and the verdict can only get worse. - **Working capital for the new location.** Inventory, A/R buildup, and pre-opening costs are not in the model. The loan proceeds are assumed to fund buildout; any operating cash drag during ramp is on top of the $40,000 opening cash. --- ## What changes the verdict | Change | Direction | | --- | --- | | Cut payroll by $9,000/month (to ~35% of revenue) | AFFORD (DSCR ~3.1x) | | Existing opex under-reported (e.g. owner draw excluded) | Could go either way | | Lender rate quote higher than 6.88% | DO NOT AFFORD (already there) | | Second location ramps in <3 months with own positive cash | Improves DSCR over time | | Existing debt service exists but was omitted | DO NOT AFFORD (already there) | | Revenue is higher than $62,000 (e.g. seasonal peak, not average) | May flip to AFFORD | --- ## Recommendation Do not sign for the loan today. Two concrete next steps: 1. **Re-run this model with the second-location pro forma filled in** (buildout cost, lease, staffing, ramp trajectory). The break-even target is small ($9,624/month) - if the second location has any realistic path there, the loan may be supportable once that revenue is added to combined EBITDA. 2. **Address the payroll ratio first.** 50% of revenue is well above the restaurant / food-service norm. Cutting to 35% alone produces $9,000/month of EBITDA and a 3.1x DSCR. The loan decision is downstream of that fix. --- **Source file:** cost_and_rates.csv (FRED, observation 2026-07-01) **Inputs received from client:** Revenue $62,000/mo; rent $8,500; payroll $31,000; food cost 28% of revenue; other opex $6,000/mo; opening cash $40,000; loan $250,000 over 10 years. **Working assumptions flagged:** Fed Funds + 325 bps (rate); 30% contribution margin (new-location break-even); 1.25x DSCR threshold; existing debt service = $0.