Struggling to run your business? You’re not alone. Thousands of American restaurants find cash flow management a challenge. There is a solution, however. A merchant cash advance is a business loan alternative that provides you with flexible finance in the event of an unforeseen emergency or sales slump. Think of it like a financial reboot — a way to kick-start your finance in the short-term. Here’s how a merchant cash advance bridges the gap between now and your next big payday.
What Is a Merchant Cash Advance?
A merchant cash advance (MCA) is a product that offers a financial safeguard when you need it most. MCAs use your card terminal — the machine in your restaurant that you use to collect payments at the point of sale — to secure finance, making it a popular choice for restaurateurs with few assets. Repayments on your cash advance are collected via your card terminal. Typically, you will pay a proportion of your revenue every month.
MCAs have only been in existence for a few years, but they have quickly become one of the most popular types of finance for small and medium-sized businesses. They are also used by companies that are ineligible for other types of credit, such as conventional business loans and credit cards. In 2010 alone, MCA funds totaled $524 million in the United States, and there were around 21,000 MCA transactions.
There are a number of reasons why you might need an MCA for your restaurant. Here are just some of them:
Your Kitchen Equipment Is Broken
Outdated or broken kitchen equipment takes a big chunk out of cash flow. Did you know that a leaky faucet loses one-tenth of a gallon every minute? That’s more than 50,000 gallons of water a year. A malfunctioning fridge, on the other hand, prevents you from storing food on-site. An MCA will provide you with the funds you need to substitute common kitchen items. Pots, pans, pizza ovens — you can replace all of this kitchenware and make repayments from future revenue.
You can also take out an MCA if you need to invest in energy-efficient technologies. Heat recovery and ventilation systems reduce heat waste and lower utility bills. Also, energy-efficient light bulbs save up to 80 percent more energy than traditional incandescent light bulbs, and they last up to 25 times longer.
You Experience a Seasonal Sales Slump
Seasonal factors have a huge impact on the restaurant sector in the U.S. Research shows that September is the worst month for restaurant sales, with revenue only picking up again in the run-up to the holiday season. The beginning of fall has long been a challenge for restaurateurs. Families have less cash to spend after the summer vacation period, and they are more likely to eat at home when the new school year starts. January is also a bad month for sales for the same reason — families have less money to spend.
If your cash flow fluctuates throughout the year, an MCA can help. This type of finance covers a shortfall in funds so you can still manage your business. Use this cash to pay for monthly outgoings — electricity bills, food and beverage expenses, staff wages, etc. — and keep your business afloat.
“We needed that money to operate,” one restaurant developer told Entrepreneur magazine when asked why he took out a MCA. “I didn’t want to leave the business without any money in the bank, and I didn’t want to go back to my investors and say, ‘The numbers are really tight. Put in some more money.’ And I didn’t want to put in more money myself because my investors would be diluted.”
You Experience an Unforeseen Emergency
Floods, hurricanes, tornadoes — all of these events can have a negative effect on your restaurant. In the event of an emergency, you might experience a drop in customers or receive extensive property damage. Then there is all the equipment you need to replace: smashed windows, broken doors, damaged floors, etc. This could potentially cost you thousands of dollars — money that you might not have.
An MCA provides you with a financial safety net in the months that follow an unforeseen emergency, making them increasingly popular with restaurant managers. One restaurant took out an MCA after Hurricane Irene hit the East Coast in 2011, for example. The cash advance helped the business get back on track after the storm damaged their property.
There are other threats to your restaurant, too. If you suffer a cyber attack, where a hacker infiltrates your restaurant management software, you might need cash to invest in new computer equipment. Alternatively, you might need to apply for an MCA if a fire damages your property or you need to hire staff quickly.
An MCA provides you with fast, flexible credit to replace kitchen equipment, cover a seasonal sales slump and manage your business in the event of an emergency. Applying for this finance is simple, and you could get your funds in just a few hours. More restaurateurs use MCAs to cover a shortfall in cash flow and improve their bottom line.