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Restaurant Cash Advance: Merchant Funding For Restaurants

Despite the immense challenges imposed by the global pandemic, the restaurant industry has experienced robust growth over the past few decades. According to Statista, the U.S. quick-service restaurant (QSR) industry’s output has experienced an increase of well over 50 percent since 2007. This contributed to an “all-time high” of nearly $283 billion in 2020. 

The U.S. full-service restaurant industry, also experienced growth, reaching $80 billion in 2020. As one of the most critical industries for the U.S. labor market, it is estimated that over 14 million Americans are employed by restaurants. 

Restaurants Need Cash

If there is anything certain in the restaurant industry, it’s that few restaurants enjoy consistent, booming sales all year round. On the contrary, fluctuations in revenue tend to be the norm. This can be due to intense competition and high staff turnover. 

Banks are reluctant to offer financing for the hospitality industry. If a restaurant were to be granted a business loan, it would have fixed repayments and set interest rates. Even if a restaurant owner should suffer a difficult month, the lender will still demand the full monthly payment. 

What Can A Restaurant Owner Do To Get Financing?

Restaurant cash advances are the perfect solution as they are essential, “the sale of future restaurant receivables in exchange for immediate money.” The way it works is that the restaurant will sell 5-20% of what is its “future business revenue”. In exchange, the funding institution will give the restaurant those “expected receivables” at a discounted rate to the funder. 

The funding institution will examine the restaurant’s cash flow, the restaurant’s credit rating, as well the restaurant owner’s personal credit.

Then, an amount will be forwarded to the restaurant, one that the funder believes the borrower will easily payback.  

How Can A Restaurant Apply For A Restaurant Cash Advance?

At the start of the pre-approval process, the lender will normally request a credit application as well as business bank statements. They will then run the restaurant’s and its owner’s personal credit. By evaluating bank statements and credit card processing statements, lenders will analyze the restaurant’s overall cash flow

Further investigation by the funder involves looking at the total amount deposited a month in both accounts, as well as the total number of deposits into the bank account, the total number of credit card transactions made at the restaurant by diners, both daily and minimum monthly balances, and finally, if the bank account had insufficient funds. 

Finally, the cash advance underwriters will utilize their own in-house model to determine if the restaurant qualifies for the cash advance and the amount of financing that will ultimately be granted. If the restaurant has been approved, a contract will be issued and will require a signature. Before closing, a list of stipulations will be given that would need to be provided. 

Within the contract, the rates and terms of the transaction will be outlined. It will also explain how the funding will be repaid. Restaurants can pay back funds using ACH payments or MCA payments (a percentage of the restaurant’s credit card transactions withheld and sent to the lender till paid off). 

Restaurant cash advances provide much-needed capital in a fairly short amount of time. The ways that the funds can be used include:

  • To purchase property
  • To purchase equipment
  • For remodeling and expansion
  • To hire and pay employees

Restaurant Cash Advances Make More Sense

Given the extreme volatility of a restaurant’s cash flow, it’s impractical to apply for a bank loan, especially since the processing of such loans can take weeks or months. 

The restaurant owner may also have poor credit and therefore, traditional financing is simply not an option. This is why restaurant cash advances make more sense for the immediate capital needs of restaurant owners.