We learned in part 1 of our example restaurant business plan financials how much capital we have to invest between ourselves and any investors we may bring on so the next step is to see how that translates into a loan or loans.
As I mentioned, even if you can pay for the whole thing yourself it is almost always a good idea to stretch your funds by borrowing- this not only gives you an extra cushion you may be very glad you have down the road but it also increases your return on the investment if everything goes according to plan.
The restaurant business loan calculator takes the total capital from the previous page and the loan percentage and then you add to it the interest rate and the loan term, or how long you expect to take to pay the loan back.
Business interest rates are usually a few percent higher than home loan rates so you can use that as a starting point. If you want a more exact figure you can call around to a few of your local SBA lenders and ask what they are charging to get a good estimate. A loan for a brand new business is usually seven year, when you a buy a business it is usually for ten.
With an SBA loan you can pay it off early with no penalty as long as you let them know you are going to do it before sending the final payoff check. (When I paid off my loan early, I had to pay an extra $800 because I didn’t tell them I was going to soon enough. Yes, I was very mad about having to pay extra to give the bank their money!).
As you can see in this example, borrowing $220,000 for ten years at 7% interest means a$2,554 per month payment.
The whole advantage of using restaurant financial software instead of a CPA to prepare your plans is you can go right back in and play with the numbers to see what happens. You can change the amount you borrow, the interest, the loan term or anything else and save each change to compare the results.
Once you get the numbers where you like them you can move to the next step. And you can always go back and make more adjustments later.
Now in some cases, you can have a second loan with the business. For example, you might have one loan to buy the business and a second one to buy the real estate. Real estate loans almost always have lower interest rates and longer terms- usually 25 years for commercial buildings.
You can use the calculator to break out a second loan to see payments and then it gives you a total at the bottom.
Another time where you may need to figure a second loan is if you are buying a restaurant business from a seller who is taking part of the price over time- effectively loaning you part of the money to buy his business. In this case it is called an owner carry loan and it is treated differently in the balance sheet and elsewhere so you need to make note of it here.
In the example below, it is not an owner carry loan so the bottom box is marked with a “2” instead of a “1”.
Now that we know how much cash we are dealing with between loans and investments in the next section we get to the fun part- estimating how much money our new restaurant is going to bring in the door in sales!
Ready to get started on your restaurant business plan? Click here.