A loan to a company that is losing money, for whatever purpose given, is usually to replace the funds that are drained away by the loss. In addition to being a good purpose, the purpose should also be consistent with our bank's lending goals and policies. A closer look at the purpose might have resulted in a different credit decision at the time the loan was granted. The restaurant had no accounts receivable. Inventory level is usually the amount that can be consumed within one week, and terms on payables are such that trade payables can carry the inventory.
Receipts are in cash, and employees are paid at the end of one or two weeks.
Rent and payments on equipment are made at the end of the month. In this case, revenues were less than expenditures, and the restaurant was making up the difference by postponing paying for their food purchases. It is understandable that suppliers would let this go only so far, and then they demanded to be paid or they would cut off supply. Even if it was recognized that the loan would be used to pay payables, it should be recognized that losses put the restaurant in that position.