Growth November 7, 2016 Last updated November 7th, 2016 1,444 Reads share

How to Use a Term Loan to Open a Second Location

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It’s a good problem to have: business is booming, and you’ve decided to open a second location. Before you can do it, however, there are a number of steps you need to take to ensure the new location is successful, including determining if a term loan is the right option to finance your new restaurant, retail store or office. 

When is the Right Time to Open a Second Location?

Ideally, it’s best to open a second location when your first location is turning a profit and you’ve created a set of systems that allow the business to run smoothly. Although there will inevitably be differences between the first and second locations, using the first business as a template can greatly improve the chance of success. However, there are many pieces that still need to be addressed before getting started. 


It’s important to ensure your new location is far enough away from your current location so you don’t cannibalize your own business. Alternatively, it may help to make sure your businesses are not so far apart that it makes it difficult to manage both of them, especially at the beginning.

When you’re researching a new space, be sure to look into the level of competition for your service. It also helps to know whether there are other businesses in the area that compliment yours – whose customers could become your customers.

Additionally, it’s important to do thorough research to ensure the product or service you’re offering is in demand in the new area. It’s not enough to simply ascertain that there’s not a lot of competition – is the demographic in the new neighborhood interested in what you’re selling?    

Employees and Management

For small businesses especially, it’s important to have employees that you can trust and know your product. When you open a new location, it’s doubly important to have staff that you can trust to run the location for you when you aren’t around. Having a manager on board that can either take over the old location or recreate the business in the new location is paramount.

When choosing your new location, be sure to research whether or not the caliber of employee you’re going to need either lives in the area or can easily get there.


Although not everything is predictable, there are several expenditures that are a given when opening a new location. These include rent or purchase price; potential remodeling costs and permits; insurance; salaries; marketing and advertising; and additional inventory. Once again, it’s helpful to use what you know from your first location as a baseline for creating the budget for your second location. Some business owners recommend you take your final number and add in a cushion for emergencies and additional costs that will inevitably occur.

Funding Your Second Location with a Business Loan

Once you have worked out the details of a second location, it’s time to figure out how you’ll finance it.  It’s better to seek long-term funding options to give the new location time to grow and become profitable, but luckily, there are several choices available to help.


Investors and investment banks take a portion of the equity of your business in exchange for the loan. Even after you’ve paid back the initial amount you borrowed, investors continue to have a say in how you run your business and expect dividends – regular payouts – for the lifetime of the business.

Government-Sponsored Loans

Government and Small Business Association (SBA) loans are a viable option, however competition is very high. It can take months to receive approval for these business loans, and there are often a large number of restrictions or qualifications that the business must meet to be considered.

Term Loans

There are a variety of small business loans to choose from, but a term loan offers an especially viable option for funding a second location. Term loans give the borrower a lump sum, which is paid back over a number of months or years in regular installments that are always for the same amount. This gives the business the ability to keep its equity, and easily budget the monthly or biweekly payments, as they are always the same. By paying back the loan over an extended period of time, the new business has the chance to work out the kinks associated with opening any new location; time to train employees; and the opportunity begin to make money without compromising cash flow.

Generally, term loans have lower interest rates than shorter-term lending options, although the rates can vary drastically by lender. Depending on the term length, credit history and the amount borrowed, interest rates range from 5 to up to 80 percent, with APRs from 5 to 80 percent. As an advantage, term loan interest rates are usually fixed, ensuring there are no changes in the payment amounts.

Where to Get a Term Loan

Historically, traditional banks offered term loans, which offer a lower rate, long-term debt financing solution. Since the 2008 recession, however, most traditional banks have ceased lending for amounts less than $1 million. Fortunately, a new option has opened up. Online lenders specializing in business loans have filled the space left by traditional banks exiting the small business loan field.

How to Apply for a Term Loan

To apply for a term loan, it’s important to have your business books in order. Most lenders will ask for two years of financial data, and most require a minimum amount of yearly profit for consideration. The lender will also require access to your bank records to review deposit amounts and frequency. It is normal for the business owner or owners to have to submit their own financial history or credit score. Having good personal credit ensures a lower interest rate.

Opening a second location is an exciting prospect to small business owners. By conducting research into how best to open the second location and how to fund it, you can ensure your new location will flourish, just like the first one.

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Michael Jones

Michael Jones

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