How Merchant Cash Advances Can Finance Your Restaurant
The restaurant industry is a cornerstone of the American economy, with approximately 10% of the U.S. workforce employed by a dining establishment. The majority are small businesses with 50 employees or less. The greatest challenge faced by many hospitality companies, like restaurants, is maintaining consistent cash flow. Business may be inconsistent. Certain times of year may be better than others. A new restaurant faces an uphill battle to stay open in its first few years. So how can a restaurant keep cash flowing regularly? The answer may be merchant cash advances as hospitality industry financing.
What is a Merchant Cash Advance?
A merchant cash advance is the sale of future revenue in exchange for money that is available immediately. A funding company buys 5-20% of future business earnings, analyze the establishment’s cash flow and credit, and forward an amount the funder thinks could be reasonably paid back. This differs from a loan in that it is a business transaction (future earnings being sold), so it does not incur interest.
What can I Purchase with this Cash?
The most useful items that can be purchased through a cash advance for hospitality industry financing include equipment, property, employee payroll, taxes, expansion, remodeling, and more. As you can see, it can cover most of a restaurant’s typical expenses.
How can my Business Apply?
One of the great advantages of procuring hospitality industry financing through merchant cash advances is that it takes considerably less time than a bank or private loan. There are two types of restaurant cash advances. The first is an ACH repayment, where repayments are made each day though a specified dollar amount being electronically transferred to the funder. To apply, a restaurant will need to provide 4-6 months of bank statements, and funds are often available within a few business days.
The other is an MCA repayment, where repayment is made each day through a percentage of credit card transactions going to the funder. To apply for MCA repayment, a restaurant will need both bank statements and credit card processing statements.
What are the Fees and Rates?
Fees and rates will vary, of course, but rates are generally set as a factor-a multiple of the amount borrowed. You may have a 1.3 rate, in which a $10,000 advance will result in a payback of $13,000. Fees have a broad range from a few hundred dollars to cover underwriting expenses, to up to 10% with additional banking costs included.