The Top 6 Ways Merchant Cash Advances Help Restaurants

Updated on:
December 18, 2023

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Applying will not affect your credit score

In the competitive world of the restaurant industry, maintaining a steady cash flow and having access to working capital are essential for growth and success. Traditional financing options can be challenging to secure and might not always cater to the unique needs of restaurant owners.

Merchant cash advances (MCAs) have emerged as a popular alternative financing solution for restaurants, providing flexible funding without the stringent requirements of loans. In this blog post, we will explore the benefits of MCAs for restaurants, including their simple application process, fast funding, and the freedom to use the funds for any business need. Let’s dive into how merchant cash advances work and how restaurants can leverage MCAs to thrive in today’s environment. 

1. Easy application process

The easy application process of a merchant cash advance (MCA) can significantly benefit restaurant owners who need quick access to funds.

Running a restaurant often involves dealing with unexpected expenses, such as equipment repairs, inventory shortages, or an opportunity to expand the business. In such situations, time is of the essence, and a lengthy application process can slow everything down.

The application process typically requires minimal documentation, such as recent credit card processing statements, bank statements, proof of business ownership, and identification. This streamlined process allows MCA providers to quickly assess the restaurant’s eligibility and provide a funding decision, often within hours or a few days.

The simplicity of the application process saves time and effort for busy restaurant owners and allows them to focus on their core business operations rather than navigating the complexities of traditional financing options. Additionally, the ease of applying for an MCA reduces the stress associated with securing funds, which can be particularly beneficial for small business owners who may lack experience in dealing with bank lenders and financial institutions.

2. Fast funding

A merchant cash advance (MCA) can be a lifesaver for restaurant owners needing fast funding. The restaurant industry often faces fluctuating cash flow, seasonal demands, and unexpected expenses that require immediate financial attention. In such situations, having access to quick capital is essential, and an MCA can provide that much-needed financial relief.

One of the main advantages of an MCA is the speed at which funds can be accessed. Unlike bank loans or SBA loans, which can take weeks or even months for underwriting, merchant cash advance providers can approve and deposit funds into a business bank account within a matter of days. This quick turnaround is crucial for restaurant owners who may need immediate working capital to cover expenses, such as payroll, inventory, or equipment repairs.

3. No real estate collateral is required

A lack of real estate collateral required is one of the signature benefits of a merchant cash advance, primarily because it eliminates the need to pledge valuable assets like your home or restaurant as security. Small and medium-sized restaurants may not have a vast array of valuable assets or may already be using their assets for other financing purposes.

Furthermore, the absence of real estate collateral requirements makes financing more accessible for restaurant owners with limited assets or restaurant startups. This allows them to obtain the necessary capital to grow and expand their operations.

4. Flexible repayment

The MCA’s repayment structure is another benefit for restaurants. Payments are based on a share of revenue, making the repayment terms more flexible than a loan, which requires regularly-sized monthly payments.

Since each payment amount is based on share of revenue, it means that the restaurant will pay less during slower periods. This flexibility can be particularly advantageous for restaurants with seasonal fluctuations in revenue.

5. Credit scores are less critical

Credit scores are less important when it comes to merchant cash advances (MCAs) because these funding options are primarily based on the performance and revenue of the business, rather than the business owner’s creditworthiness.

MCAs are structured around a business’s sales. Funders evaluate the business’s revenue stream and to determine the advance amount and repayment terms. This focus on cash flow and sales performance allows businesses with less-than-perfect credit scores to still access financing. In fact, some MCA providers like The LCF Group will fund those with sub-500 credit scores.

In addition, MCAs are typically short-term business funding solutions, with repayment periods. Due to the shorter repayment terms, funders are less concerned with the long-term credit risk and more focused on the business’s ability to generate consistent sales and revenue in the short term.

6. Use funds for various purposes

The advantage of funds from a merchant cash advance (MCA) being used however you need is that it provides business owners with the flexibility to address various financial needs, which can be critical for the growth and stability of their businesses. Other types of financing often require specifics on how they’ll be spent. But with an MCA you can:

  • Address urgent needs: Businesses often encounter unexpected expenses or opportunities that require immediate funding. An MCA allows business owners to use the funds to address these urgent needs, such as equipment repairs, inventory replenishment, or taking advantage of a time-sensitive business opportunity.

  • Customized spending: Every business has unique financial requirements, and the flexibility of an MCA allows business owners to allocate funds to the areas that need it most. This may include marketing and advertising, hiring and training staff, or expanding the business into new markets.

  • Cash flow management: Managing cash flow is a common challenge for many small businesses, particularly those with seasonal or fluctuating sales. The ability to use MCA funds as needed allows business owners to better manage cash flow, covering expenses during slow periods and ensuring business operations run smoothly.

  • No restrictions on use: Unlike many loans that may have specific restrictions on how funds can be used, MCA funds can be applied to any aspect of the business. This gives business owners greater control over their financial management and the freedom to make the best decisions for their businesses.

  • Foster growth and innovation: The flexibility in using MCA funds enables business owners to invest in growth opportunities and innovations. This may include developing new products, enhancing services, or improving the overall customer experience.

7. Available to many types of businesses

We’ve said it before MCAs are not loans. That means that unlike a term loan, there’s no interest rate to consider, and no problem if your company has bad credit. It also means that many businesses ineligible for small business loans can sail through the approval process for an MCA. Trucking, used auto sales, even cannabis dispensaries and other risky businesses can get funding, as well as businesses with checkered credit history, and even businesses with prior bankruptcy or default are often able to receive a business cash advance.

Final Thoughts

From their easy application process and quick access to funds to the flexibility in usage and less stringent credit requirements, MCAs can help restaurant owners overcome the challenges they face in a demanding industry. By understanding the advantages of MCAs and carefully evaluating their business needs, restaurant owners can make informed decisions to fuel their growth and success. Ultimately, the flexibility and convenience provided by MCAs can empower restaurants to seize new opportunities and navigate the ever-evolving landscape of the food and beverage sector.

*Repayment in this context describes the process of repurchasing a merchant cash advance. It does not describe the process of repaying a loan. MCAs are legally distinct from loan products.

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