Reasons Why Restaurant Owners Should Consider Merchant Cash Advance (MCA)
Restaurant owners are often in need of a flexible and convenient funding source to smoothly cross the hurdles, they face during their entrepreneurial journey. To upgrade equipment, avail of limited-period special offers from the suppliers, accommodate seasonal flux or tackle any other unexpected crunch, substantial working capital is what every restaurant owner needs. Though there are multiple financing options available today, but, for a restaurant owner, it is always beneficial to go for the one that offers quick approval and disbursement to make sure the borrower gets the amount exactly when it is required. Unlike traditional lenders like banks, which follow a lengthy application, and approval process and have a high credit requirement, Merchant Cash Advance (MCA) is a fast and flexible financial option, that is quite lenient with credit scores as well. In the case of MCA, borrowers get funds deposited in their business account as fast as 24 to 72 hours of approval. Besides, the application process is simple and short, requires very little documentation, and the approvals come in a flash. All these attributes often make MCA, an ideal financing option for restaurant owners, who need funds in a short time to gain the purchasing power, save cost and get on better terms with vendors and bulk purchasing options. The borrowed funds can be used for all business expenses like inventory, seasonal staffing, kitchen equipment leasing or buying, marketing campaigns, renovations etc.
The advance is paid back in the form of a percentage of the borrower’s future credit card sales, which keeps on getting deducted from the borrower’s business account daily or weekly, till the total amount is recovered. As MCA mostly operate by taking a percentage of the daily profit instead of setting a fixed payment amount, restaurant businesses tend to benefit more than any other, because the profits of restaurants fluctuate almost regularly.
Simplifying the repayment calculation :
Advance received – $10,000 Agreed payback amount – $13,000
Terms of the advance – 10% of monthly credit card receipts
If the monthly sales come up to $5,000, the entire repayment will take 26 months, i.e., 500×26=13000
If the monthly sales come up to $10,000, the entire repayment will take 13 months, i.e., 1000×13=13000
When comes to the day-to-day payment structure, the daily payback amounts, termed “holdback”, get debited automatically from the borrower’s business account using the Automatic Clearing House (ACH) payment process. Offering more clarity to the borrower as well as the lender, the daily payment method helps to determine the Annual Percentage Rate (APR), which reflects the total cost of a loan for one year, including the interest and additional fees.
Primary Benefits Of MCA For Restaurant Owners:
A type of unsecured loan, MCA doesn’t require the borrower to put up any tangible asset as collateral. In the case of MCA, the fees associated with the advance are generally kept higher than the regular bank loans or lines of credit keeping in mind the lender’s risk.
Once the borrower is found eligible by the lender’s underwriting standards and he/she has all documentation in place, the funds get disbursed within 24 to 72 hours or a maximum of a week. The documents required to apply for an MCA are; 3 to 6 months of business account and profit-loss statements, the tax return of the last year, incorporation certificate, copy of the driver’s licence, and proof of tenancy, which can be a mortgage deed or a valid lease agreement.
Unlike many business loans, MCAs do not put restrictions on the usage of the funds. The borrower can utilize the advance in any business operation, be it equipment purchase, employee bonus allotment or any other. As flexibility is quite crucial in the restaurant industry, MCA turns out to be an ideal financing option.
MCA offers convenient and flexible repayment options. Unlike the traditional lenders, who follow the fixed monthly repayment structure, MCA lenders do not set a particular payment amount. Therefore, in the case of an MCA, even if the sales graph descends and the profit drops off, the borrower won’t have to bear the burden of paying a fixed monthly amount to the lender. The repayment is calculated as a percentage of the daily credit or debit card sales. That means, when the sales decrease, the payment will also go down and when the sales graph starts rising, making a substantial profit, the payment will get higher once again.
MCA provides the entire amount in one lump sum, making sure that the borrowers get the option of making large purchases if needed. Existing MCA clients can easily apply for and get more funds without the need of repaying the existing amount, entirely.
Running a restaurant business, successfully, often requires enough hard cash. In difficult times like slow seasons or when an expensive piece of equipment has suddenly broken down, MCA is always a saviour. As it is not a traditional loan, it does not follow a rigid payment structure and credit score requirement. During the COVID-19 pandemic, when the travel and hospitality sectors were going through one of the darkest phases of their careers, many restaurant owners all over the world opted for MCAs to stay afloat. MCAs not just provide the restaurant owners with the required amount at flexible repayment terms, but also help them to upgrade their businesses two to threefold.