Merchant Cash Advances: A Solution for Restaurateurs?

Merchant cash advances are unique financial instruments, unlike a loan, but with the ability to advance cash.

Unsecured (they aren’t tied to property, equipment, or other financial assets), they are a unique source of quick-access-to-cash for high-turnover businesses (like restaurants, caterers, and similar enterprises).

The key benefit of a Merchant Cash Advance is that the borrower gets a lump sum of money, and is able to repay that amount through their sales, in bite-size amounts – over time.

The process works like this:

  1. A lender evaluates the average amount of your credit card (or cash) sales.
  2. You are then presented with an offer of a lump sum of cash.
  3. You accept this amount.
  4. You repay the advanced amount over an agreed-upon period of time, in daily, weekly, or monthly basis (typically, this is taken directly out of your bank account).

The amount you pay depends on your income. For example, if you have high credit card sales one week, you’ll pay the advance faster. The flexibility of cash advances works well for businesses with seasonal highs and lows.

For example: if business grinds to a halt: your payments slow down with it, if business takes off like a rocket, your payments accelerate accordingly, and you pay-down the amount owing quicker.

It’s comfortable.

But there are 2 down-sides:

  1. Interest – the rate is generally higher than most other forms of credit, due to the degree of patience and transaction-processing overhead required.
  2. Bank loans – banks and similar institutional lenders will take a sideways-look at your account, due the high amount of transactions running through it, signally (potentially, to them) an increased risk of fraud.  This makes them less inclined to do business with you on regular loans, for obvious reasons.

Your best bet is to plot your cash flow in advance, accept a minimal-amount loan, and pay it down as quickly as possible.

Get a general sense of the dynamics of how it’d work for your business by running your numbers here:

Get a quote on a Merchant Cash Advance for your business, by clicking here.