Restaurant Merchant Cash Advance
When your restaurant needs capital, there are only a few options that can give you the cash you need right away. A merchant cash advance can fund your company’s needs within just 24 to 48 hours. This funding option can be used for any of your restaurant’s needs. From paying overdue utility bills to covering payroll, a restaurant merchant cash advance can help you cover costs during a slow month.
How Restaurant Merchant Cash Advances Work
This is not a loan. A restaurant merchant cash advance is basically an early payment for your future credit card sales. The lender gives you the cash in a lump sum. Then, this amount is repaid automatically through the credit card sales you make each day.
Depending on your company’s history, the size of the advance and sales, you may pay back 5 to 20 percent of your credit card sales each day. The advance can be repaid in just 90 days, or it can be for as long as 24 months. As soon as you get the cash, you immediately start repaying the advance through your sales.
The lender determines how much you can borrow according to your average credit card sales. They look at your receipts for the previous two to six months. Depending on your situation, you may be able to get 50 to 250 percent of your monthly credit card transactions.
Benefits of Restaurant Merchant Cash Advances
– Fast funding in just 24 to 48 hours
– Online application
– Approval in hours instead of days
– Flexible repayment terms
– Bad credit is not a problem
– High limits of $2,500 to $2 million
Drawbacks of Restaurant Merchant Cash Advances
– Reduces daily cash flow while you repay the advance
– Higher fees than a typical business loan
– Must be repaid automatically from credit card sales
How a Holdback Fee Works
A holdback is the interest you pay out of your credit card sales. Depending on the provider and the business, the holdback can range between 10 to 20 percent. The percentage is generally fixed until the advance is paid back.
Since the holdback is a percentage and not a set amount, it can be paid back faster if you earn more money. If you earn less money than expected, then you pay it back slower. This basically means that the amount you pay is proportionate to the money you have coming in. If you are worried about a fluctuation in your earnings each month, then this might be a viable alternative to a fixed payment.
How Do Factor Rates Work?
A factor rate is how much you have to repay the provider. A merchant cash advance does not use an APR. Instead, it has a factor rate between 1.1 and 1.5. You have to carefully consider the factor rate because it can make the overall interest rate appear lower than it actually is. When you take longer to pay back the advance, the actual interest rate ends up being higher. Before long, the advance can seem very expensive.
If you have time and a good credit score on your side, you can apply for a business credit card instead. A term loan can also be found at typical banks. Both of these options offer an alternative to merchant cash advances, although they take time to apply for. If you need cash fast, a merchant cash advance might be a viable option for funding a temporary cash flow problem. It also works if you have poor credit or do not qualify for a traditional business loan or credit card.