Why are merchant cash advances particularly suitable for restaurants? The flexible nature of merchant cash advances means they are becoming an increasingly popular option for hospitality businesses in the UK. So what is this type of restaurant funding?
Only a few restaurants are fortunate enough to enjoy a booming trade all year round. Some might be based in tourist areas and therefore experience significant seasonal fluctuations. Others might do a lot of business in the run-up to Christmas. No one in the restaurant trade needs to be reminded that January, for example, is often a notoriously quiet month.
Factors such as competition from all the other local restaurants and high staff turnover can also make life difficult for restaurant owners.
Restaurant funding: Given that revenues can fluctuate significantly, it might be difficult for a restaurant to repay a traditional business loan. The banks are becoming increasingly reluctant to support the hospitality sector. Even if you are able to obtain a business loan, it will have set interest rates and fixed repayments, and the lender will demand that full monthly repayment is made even if your restaurant has had a challenging month.
Merchant cash advances can provide the perfect solution, as here repayments are taken as a percentage of the business’s card transactions. Therefore, if your turnover for any given month is low, you only repay a small amount, while conversely, you make higher repayments when the business is good.
Merchant cash advances are also ideally suited to restaurants as a high proportion of their customers pay using debit and credit cards. No matter how large their turnover might be, a business can’t make use of a merchant cash advance if they only accept cash!
Businesses of all sizes are eligible for merchant cash advances, so it doesn’t matter whether you only have a few tables or can accommodate hundreds of diners. The amount you can borrow will be linked to your typical volume of card transactions – the normal size of an advance might be somewhere between 100% and 150% of the value of your monthly debit and credit card transactions.
The card transactions don’t need to take place face-to-face for you to make use of merchant cash advances. You can still take out this form of finance if you do a lot of takeaway business, where customers might pay online via services such as JustEat and Deliveroo, perfect for restaurant funding.
How do I apply for a merchant cash advance?
Firstly, you need to make sure that you are likely to satisfy the basic criteria. There are more than 150 providers of merchant cash advances in the UK, but they are all likely to require you to have been trading for a minimum period (e.g. six months) and to have a minimum annual turnover from card payments (e.g. £50,000).
You can get in contact with the team at Funding Bay who will offer you a consultation. A member of our team will then take your business through the process. This will begin with filling in a Discovery Form, once we can understand the financial status of your business, we will put your application through to one of our merchant cash advance lenders. Lenders include 365businessfinance, Merchant Money, or Nucleus, to name just a few.
How much do merchant cash advances cost?
The initial fees such as arrangement fee, broker fee, origination fee, and funds transfer fee might add up to around 5% of the amount borrowed.
Once the arrangement is in place, the provider might take around 15% of the value of each card transaction as repayment for the loan. The remaining 85% of the transaction value is retained by the business.
How long do these arrangements last?
Unlike traditional loans, merchant cash advances do not have fixed terms. However, the provider will carry out an affordability assessment at the application stage and might expect you to repay the sum borrowed within a period of five to ten months. If your application is successful, the funds will often be in your bank account in as little as 24 hours.
What can I use the funds for?
In short, the money provided under a merchant cash advance can be used for any purpose. However, you might decide to use it to:
- Boost working capital
- Purchase ovens and other equipment
- Refurbish the restaurant
- Conduct repairs
- Finance a menu re-design
- Conduct a marketing campaign
- Pay regular bills during periods when you have fewer customers
Get in touch with Funding Bay to find out more.
