Obtaining a traditional business advance in the restaurant trade is becoming more difficult. This is partly due to banks becoming increasingly more reluctant to support the hospitality sector. Even if you’re a restaurant owner who can obtain a business advance, it will have set interest rates and fixed repayments. This means the lender will demand that full monthly repayment is made even if your restaurant has had a challenging month. That’s where a merchant cash advance comes in.
As every restaurant owner knows, no two months in this sector are the same. Often revenues can fluctuate significantly from month to month. Very few restaurants are fortunate enough to enjoy steady, booming trade all year round, and seasonal fluctuations are common. This can make it difficult for restaurants to commit to repaying a traditional business advance.
However, a cash advance provides the ideal funding solution for the restaurant industry and is becoming an increasingly popular option for hospitality businesses in the UK.
So what exactly is merchant cash advance, and how can it benefit your restaurant?
What is merchant cash advance?
Merchant cash advance is a type of business financing. Merchant cash advances are ideal for businesses that accept debit and credit card payments/use a PDQ machine.
The lender will provide the business with a cash advance which is then repayable as a percentage of its customers’ card payments using a card terminal (PDQ). As soon as the lender approves your application for a cash advance you can access the cash. This amount is then repaid with a percentage of your debit and credit card sales, via your card terminal. The merchant cash advance provider will deduct a daily or weekly percentage of debit and credit card sales until the amount is repaid in full; this amount tends to be around 10% – 15% of the sale.
The beauty of this is that the advance is repayable in line with sales: your business only pays back the advance when it receives customer card payments, which helps to manage cash flow.
The money provided under a merchant cash advance can be used for any purpose. Some examples of the ways you can use your cash advance are:
- Boost working capital
- Purchase equipment
- Refurbish your restaurant
- Undertake repairs
- Finance a menu redesign
- Website Development
- Pay regular bills during periods when you have fewer customers
Why merchant cash advance is ideal for the restaurant sector
A major benefit of a merchant cash advance is that your repayments are all based on revenue. Repayments are only made in line with sales. As well as being great for cash flow, this means that there is less risk of you defaulting on your advance.
Merchant cash advances ideally suit restaurants, as a high proportion of restaurant customers pay using debit and credit cards. The more sales you put through your card terminal (and the higher the amounts), the faster you will repay your merchant cash advance.
If your restaurant is predominantly a takeaway business, it’s good to know that when it comes to merchant cash advances, the card transactions don’t need to take place face-to-face. You’re still eligible for this funding if your customers might pay online via services such as JustEat and Deliveroo.
Everything else you need to know about merchant cash advance for your restaurant…
How much can I borrow?
The amount you can borrow will link to your typical volume of card transactions. Most lenders will agree to a cash advance of somewhere between 100% and 150% of the value of your monthly debit and credit card transactions.
What are the repayment terms?
Due to the nature of the repayments, merchant cash advances don’t have typical repayment terms. The repayment timeline is based on sales, which means repayment terms can take anywhere from three to 18 months. The higher your credit and debit card sales are, the sooner you will pay off your advance.
How quickly can I get the funding?
Merchant cash advances are an easy, low-risk method to get short-term capital for your business. As soon as the lender approves your application for a cash advance you can access the cash. Decisions tend to be made quickly, usually within 24 hours. This makes this an ideal funding option for businesses who require capital quickly.
How do I apply for a cash advance?
The easiest way to apply for a merchant cash advance is to contact a financial facilitator such as PMD. They have experience in securing this type of funding for restaurant businesses just like yours. They’re also always on hand to offer help and advice on the best funding options for you.
PMD has an unrivalled range of solutions, specialists, and access to over 100 lenders. PMD will take the hard work out of securing merchant cash advance for your business, liaising with lenders on your behalf, leaving you free to focus on running your business.
If you are a restaurant owner and are interested in securing a merchant cash advance, get in touch today to see how PMD can help.