For hundreds of years, people have sought out places where they could gather with family and friends to enjoy a beverage and some much needed social time. From the earliest pubs to today’s modern nightclubs, these types of establishments have provided the social outlet that so many people crave. Nightclubs have woven a place into the social fabric of our society which is why we continue to see them have success.

The State of the Economy

The success of the nightclub industry has a direct correlation to the success of the economy. Going out to a nightclub is one of those items that people may cut from their budget when times get tough. On the flip side of that, when people are feeling good about the economy and their own financial situation they may be more likely to go out and spend a bit of extra money. A key element for any nightclub is staying relevant in the eyes of the consumers. As trends shift and the wants of the customers change, nightclubs need to shift and change as well.

Why Would a Nightclub Need Financing?

Making changes to an existing business, or starting up a new one may require some sort of financing. There are several items that a nightclub could spend money on to make some updates and improvements, and each one could help draw in more customers.

 

  • Social media is a force in our society that nightclub owners need to take advantage of. Using social media outlets has become the way of the world, and it can be used as a great marketing tool if the right steps are taken. People are in constant communication with each other, and they rely on their social media networks to find out what’s hot and what’s not on any given night. Nightclubs need to figure out a plan to get their customers to use social media while they are in the establishment because that is likely to draw in more customers. This type of work may require hiring staff that have some marketing expertise, or just boosting the budget for social media and marketing.
  • Renovations are always something that a business might consider when they are trying to attract more customers. A recent Forbes article makes it clear that younger nightclub goers aren’t interested in standing in long lines and paying high prices for drinks. The article also states that our younger generation is more interested in going to places where they can play games, visit with their friends, and not have their eardrums blown out by loud music. Redesigning a space can really help to attract these customers and boost the success of a business.
  • Technology within a nightclub is another area where owners could invest some of their financial resources. In the digital age we live in, there are constantly new technologies available to make the nightclub experience a more interactive one. Customers are looking for ways to be able to customize their experience directly from their smartphones. Whether this is choosing music or ordering food and drinks, it is an area that is trending upward.

Financing Options

When a nightclub owner makes the decision to make some improvements or changes to their business, there are two main sources of funding to consider: a merchant cash advance, and a business loan. Both of these products can provide the necessary financial resources to start up a new business or make improvements to an existing one. Each product should be carefully considered to find the best match for the business.

Business Loans

Business loans are the more conventional approach between these two products. The most common and widely used business loan is one that is obtained through the Small Business Administration. These loans are partially secured by the government, and they provide some very flexible repayment terms. The repayment schedule can be spread out over several years depending on what the money is going to be used for.

The SBA loans can be up to five million dollars, and there are no minimum loan requirements. That amount of money would likely be enough for most nightclubs to meet their financial needs. The interest rates on these loans are typically negotiated, and there are fixed and adjustable rate options available. The fact that these loans are partially secured by the government makes them a bit easier to qualify for. These loans are great for businesses that are just starting out, and those with less than perfect credit ( a minimum score of 620 is required). One important note on this type of loan is that it can take weeks to secure the funding. There is a great deal of paperwork that needs to be done, and the lender will do a deep dive into the financial history of those involved in the loan. There are also a few items that should be prepared ahead of time when applying for this type of loan:

  • Resume
  • A detailed business plan
  • How the loan is going to be used
  • Personal and business credit reports
  • Personal and business tax returns
  • A debt schedule and profit and loss statements
  • Legal documents for the business

Merchant Cash Advances

Another option that is relatively new to the financing scene is a merchant cash advance. This option has been well received and widely used in the nightclub industry. Nightclubs process a large amount of credit card transactions, and that fact is what makes this financial product so appealing in this industry.

A merchant cash advance is secured through the daily credit card sales of a business. In exchange for the lump sum of money, the business agrees to pay a portion of their credit card sales back to the lender. There isn’t an interest rate that is used to calculate the repayment, but rather a factor rate. The factor rate is used with the original loan amount to determine what the total amount of money paid back will be. When factor rates are converted to interest rates, they tend to start around 15% but can go much higher than that.

A merchant cash advance is considered an unsecured loan because there is no requirement of owning any equipment or property to obtain the loan. Lenders are also not going to do a deep dive into the credit history or bank accounts of a company. What the lenders are most interested in is the amount of cash that is flowing through a business via credit card terminals.

This type of loan product has a much quicker turnaround time when compared to a business loan. The timeline from the application being filled out to the money being available can be just a few days. The amount of paperwork involved with this type of loan is also quite a bit less when compared to a business loan.

Another appealing factor with this type of loan is how the repayment is structured. With a bank loan, there will be a fixed amount of money repaid each month. With the merchant cash advance being tied to credit card sales, more money will be paid back when business is booming, and smaller amounts will be repaid if there is a slower period. The merchant cash advance has a lot of positive aspects, but it is important to note that this type of loan could cost more to repay due to higher repayment terms.

Final Thoughts

The nightclub industry is changing due to the demands of consumers. This is requiring businesses to keep up with the demands by making some necessary changes to how they do business. Any time businesses are going to make major changes, or new businesses are going to start up, there is a financial component to the equation. There are two main sources of funding for nightclub owners: small business administration loans and merchant cash advances. Each product should be carefully considered to determine which one is the best fit. The table below highlights the most important aspects of each type of loan.

 

SBA Loan

Merchant Cash Advance

  • Significant amount of paperwork needed to apply for the loan
  • Timeline is several weeks to obtain loan approval
  • Provides a lower overall cost due to favorable interest rates
  • Up to $5 million can be borrowed
  • Longer repayment terms that put less stress on the finances
  • Low down payment terms
  • The loan is government backed and the administrators have an interest in seeing the business grow and succeed
  • Much less paperwork required to apply for the loan
  • Timeline can be just a day or two to obtain the funds
  • Overall cost can be higher due to factor rate calculations
  • Quick turnaround can help with equipment failures or other large expenses
  • The repayment runs directly through the credit card terminal providers which keep it separate from the business bank account
  • Repayments adjust with the success of the business – more is paid back when business is good and vice versa
  • There is no fixed term for repayment
  • Takes away the possibility of a missed loan payment