If you own a restaurant, then you know that a good portion of your startup financing goes toward hiring trained staff, marketing, inventory, appliances and equipment, and leasing space. However, for first-time restaurant owners and entrepreneurs getting an traditional loan can be a difficult process. One form of restaurant financing that is on the rise in popularity is the Merchant Cash Advance.
Dispelling The MCA Stigma
Not but a decade ago, a business only asked for a Merchant Cash Advance (MCA) when it was under financial strain and in danger of closing its doors. However, in recent years, MCAs have been used in place of traditional restaurant financing for everything from leasing new equipment to running marketing campaigns. In fact, when restaurants need short term financing, MCAs are one of the most popular choices.
How A Merchant Cash Advance Works
A Merchant Cash Advance is ideal for restaurants that are set up to accept credit card payments, because the payment terms for MCAs are based on a percentage of credit card sales. With an MCA, restaurant financing is usually secured in 24-48 hours, and payments come from credit card receivables (sales). There is no collateral, and because payments are based off of sales, there is much more flexibility with a merchant cash advance for restaurant financing than with traditional loans.
Advantages Of MCAs
As stated above, merchant cash advances take a very short time to process, which means you will have working capital almost immediately. The North American Merchant Advance Association has set up best practices guidelines that forbid hidden fees, fluctuating rates, and abusive collection tactics that sometimes befall other non-traditional lending practices. Most Merchant Cash Advance lenders will go over a detailed breakdown of each cost so that there is complete transparency in what is owed. A merchant Cash Advance provides restaurant financing without business owners having to pay out of pocket, or maxing out lines of credit in order to cover payroll, upgrade equipment, renovate, or buy new supplies. And since those improvements are a surefire way to increase sales, a Merchant Cash Advance for short-term restaurant financing seems like a logical choice.
Disadvantages Of MCAs
Because a Merchant Cash Advance is usually needed for the short term, and because the borrower does not have to put up any collateral ahead of time, the interest rate is typically slightly higher than traditional loans. The other drawback is that if your restaurant is not used to a high volume of credit card sales, then paying back the MCA may take a bit longer than expected.
If you own a restaurant, and any of the above scenarios sound familiar to you, then ask how a Merchant Cash Advance can work for you, and get the restaurant financing you need to launch your business to the next level.