The capital stack for a second location, layer by layer

The number most owners carry around for a second site is the contractor's quote. That number is usually under half the money that leaves the bank account before the new location covers its own costs. The rest is equipment, deposits, permits, pre-opening payroll, opening inventory, and the months of operating loss between the doors opening and the day revenue covers fixed costs.

A capital stack is just the list of who funds which part. Lenders think in these layers because each layer has different collateral behind it and a different willingness to be repaid last. If you present a second-location request as one number and one ask, you are asking a single lender to take every kind of risk in the project at once, and the answer to that is usually no.

The layers, in the order they are underwritten

What the project actually costs

• Build-out hard costs: 186,000
• Furniture, fixtures and equipment: 94,000
• Soft costs, permits, design, deposits: 28,000
• Opening inventory: 22,000
• Pre-opening payroll and training: 31,000
• Working capital reserve: 45,000

Total 406,000. The contractor's quote was 186,000, which is 46 per cent of the project.

Now the stack. Landlord allowance 55,000. Equipment finance at 90 per cent of the FF&E line, 84,600. Owner cash 60,000. That leaves 206,400 for senior term debt.

At an illustrative 9.5 per cent over 60 months, the equipment payment is 1,776.76 a month. At an illustrative 8.5 per cent over 120 months, the term payment is 2,559.06. Combined monthly debt service is 4,335.82, or 52,030 a year — before the new site sells anything.

Owner cash is 14.8 per cent of the project. Add the landlord allowance and 28.3 per cent of the cost is covered by money that is not senior debt. That ratio is what a credit committee reads first.

The timing problem the stack hides

The allowance is 55,000 of your funding and it will not arrive until the work is complete, the lien waivers are signed, the certificate of occupancy is issued and the landlord's payment terms have run. Four and a half months is unremarkable. Carrying 55,000 for that long on a line at an illustrative 11 per cent costs about 2,269 — small. Not having 55,000 available in month three is not small.

Three of the six layers have this shape. Equipment finance funds on delivery and acceptance, not on the deposit the vendor wants at order. Term debt funds at closing, which can be after your contractor's mobilisation payment. The working capital line, if you get one, funds last of all.

So build two schedules: a sources-and-uses table showing who pays for what, and a week-by-week cash calendar showing when each source actually lands against when each bill is due. The gap between them is the bridge you have to fund yourself, and it is the number that gets missed.

Where the stack usually breaks

• The equipment layer gets absorbed into the term loan. You pay for a fryer over ten years, and the fryer dies in year seven. Match term to asset life, layer by layer.
• The working capital reserve gets cut to make the deal fit. It is the only line with no invoice attached, so it is the easiest to delete. It is also the line that keeps you from taking an expensive short-term advance in month four.
• Pre-opening payroll is underestimated. Training a full crew before the first customer walks in is real payroll with real withholding.
• Soft costs are excluded by the equipment funder. Freight, installation, rigging and warranty may or may not be fundable — see financing soft costs on equipment.
• The first location's debt service is ignored in the coverage test. The lender combines both. You should too.

What to have ready and what to ask for

1. A sources-and-uses schedule where uses total the whole project, not the construction quote.
2. A week-by-week cash calendar from lease signature to month six after opening.
3. Contractor bid, equipment quotes, and the executed lease with the allowance terms highlighted — the reimbursement conditions and the payment window specifically.
4. Twelve months of statements and financials for the existing location, plus a projection for the new one that you can defend line by line.
5. A request for an interest-only or deferred-payment period on the term debt that runs to the end of your ramp, not to the opening date.
6. Written confirmation of whether the lender will file against both entities and both locations, and whether the existing location's lender has an anti-stacking or additional-indebtedness clause you are about to breach.

Ask each funder which layer they are willing to sit in and whether they will subordinate to, or accept, the others. A funder who will not answer that question in writing is not going to be a workable part of a stack.