Nowadays, a restaurant can rely on a merchant cash advance as one of its most reliable sources of capital. Restauranteurs can rely on a source of capital with relatively relaxed underwriting standards, quick funding and for a lack of restrictions on the use of loan proceeds.
Here are a few situations where it might make sense for a restaurant to get a merchant cash advance:
Lack of Liquidity & Available Capital
Having the necessary liquidity is important for restaurants, especially early on. Studies conducted on the restaurant industry show that over a quarter of all new restaurants fail within the first year. A large part of those failures were driven by a lack of capital and liquid assets.
As merchant cash advance loan proceeds can be utilized for any purpose, a restaurant looking for a quick source of capital can do anything from renovating their kitchen to replacing old equipment and dishes.
Restaurants should look at a merchant cash advance loan for when there is a lack of liquidity and available capital. As with any lending solution, a merchant cash advance should be used only when it is absolutely necessary, and we will cover one major reason why in the next section.
Emergency Short-Term Capital
If a major piece of equipment fails and needs to be immediately replaced, or if some sort of catastrophe, such as a fire or a car accident occurs, a restaurant may find itself in need of capital. More to the point, the establishment might need a reliable source of emergency short-term capital.
In this situation, a restaurant might see a merchant cash advance as a potential solution. If the restaurant has steady cash and remittance revenue, from an underwriters’ perspective it may seem that there should be no problems. But an underwriter’s perspective can hardly reflect the reality of the establishment.
The concept of steady cash and remittance revenue is absolutely essential to the underwriting process for a merchant cash advance. Since the interest rates are higher and the duration is shorter on a merchant cash advance loan, the establishment must make sure that they are financially capable of servicing their debt.
Choosing a Reliable Lending Partner
In today’s modern lending landscape, resources for small and medium sized businesses are scarce. Choosing the right business loan option becomes as important as choosing the right lending partner. Not every client is right for every lender, and vice-versa.
So when it comes to getting a merchant cash advance, choosing a reliable lending partner is essential. Much like any other lending product, the right lender can not only make a difference in getting the best rates, but also increasing the chance that the loan will be repaid.
Best of all, a responsible lending partner will work with the establishment to make sure that the establishment will remain solvent. A lender who cannot recoup any investments from their portfolio will not be able to lend in the first place. Borrowers will be able to work out, and possibly re-negotiate their terms, if the need should arise.
So when it comes to the right reasons for a restaurant to consider a merchant cash advance loan, it is best to consider exactly why a restaurant would pursue one.
