A merchant cash advance is a groundbreaking business finance product. This option only became available quite recently, however, it has been well received by many businesses in the leisure industry, including bars and nightclubs. With this financing method, lending is secured through your card terminal, which makes it ideal for bars that are not asset rich, but that process a large number of card payments each month. Loan repayment amounts are calculated as a percentage of your turnover, so it is a fast and simple funding option for many nightlife venues.
Nightclubs and bars can be highly profitable businesses, but lots of venue owners encounter unforeseen costs, or discover fresh avenues to expand their bars that need capital investment. These venues are rather unique, in that they have numerous options for financing, such as conventional bank credit and brewery loans, etc. Nonetheless, these loans usually force owners of bars to purchase from specific breweries, or adhere to their bank manager’s demands about what they can use their money for.
An alternative finance method, like a merchant cash advance, gives you the versatility to make the investments your establishment requires, like expansion, renovations or something totally different. At the same time, it gives you greater control over what drinks or food to purchase, so you have more negotiating clout and leverage when dealing with suppliers.
Obtaining a Merchant Cash Advance
All bars that use card terminals to accept customer payments have card terminal providers – these are the companies that process the transactions on their behalf. Lenders who provide merchant cash advances consult terminal providers, to gain a clear idea of how much cash is running through your establishment. Consequently, in contrast to other kinds of lending, you do not have to undergo a credit check or have your bank accounts closely inspected.
Merchant cash advances are categorized as unsecured business loans because they do not require your company to own any machinery, property or other assets. These loans are, therefore, entirely separate from your current banking options, like overdrafts. Theoretically, any bars that accept payments through card terminals can receive merchant cash advances. And because lenders can see the average monthly profit for your business easily, they can arrange a loan and repayment schedule far quicker than with other products. This makes merchant cash advances an excellent option for bars without expensive assets that require cash quickly.
The Advantages of a Merchant Cash Advance
Repayments are Straightforward
Repayments tend to run smoothly with merchant cash advances because lenders work with card terminal providers directly. This means that the repayment amount they take does not come from your business bank account. Rather, it is taken from the point of origin — in a similar manner to the way that many people make income tax payments.
In contrast to other finance methods, the funds are automatically taken to settle the debt, so it is a ‘hands-free’ arrangement as far as the business owner is concerned. As a result, you will avoid fretting about your finances and have more free time to run your business.
Scalable and Versatile Finance
In most cases, repayments are arranged as a revenue percentage — so they rise and fall relative to your company’s income. This means that when you are going through a profitable period, your monthly repayments are higher, however, if business starts to drop off for a while, you will pay a lower amount. This suits many bar and nightclub owners, because unlike finance with fixed payments, you can be confident of being able to meet repayments if you encounter obstacles at any point.
Ensures That Other Types of Finance are Freed up
Another advantage of merchant cash advances is that they essentially open up new credit lines. You can obtain other types of business finance alongside your merchant cash advance. This could be helpful in a number of different ways. For instance, if you currently lease equipment, you could apply for a merchant cash advance to get some extra cash flow simultaneously.
Rules and Restrictions
Your loan amount will depend on how much revenue your business generates. As a general rule, you will be offered a loan similar to the amount that your business makes during an average month. Some lenders work exclusively with particular terminal providers, so your options could be restricted based on your current provider. Nonetheless, other lenders are open to working with a broad variety of terminal providers. A reputable lender will guide you through the different options to identify the one that’s right for you.
How a Merchant Cash Advance Works in Practice
Let’s say that the back bar fridge in a bar breaks down during the busiest period of the season — and needs replacing as a matter of urgency. A merchant cash advance can be arranged quickly, once the lender has seen the sales figures for the previous month. The funds are then delivered instantly, so a new fridge can be ordered and installed within a matter of days. Repayments are sent as a revenue percentage during the rest of the seasonal period.
Although conventional business loans can be a useful funding option for bars, due to their smaller cost overall, they often have stringent eligibility criteria. Also, during months when business is slow, you still have to pay the full monthly amount. The leisure industry — in particular nightclubs and bars — is not always the easiest industry for obtaining finance. However, if you have a positive cash flow situation, you can secure funding quickly with a merchant cash advance and keep your establishment moving in the right direction.
These loans can be repaid at a comfortable pace, in line with the expansion of your business. Because the repayment amounts increase and decrease with your sales, you never have to fret about ending the month with a shortfall. Better still, because the repayments have no fixed term, the pressure is nonexistent. Merchant cash advances compare favorably with business loans because they do away with the concept of missed payments.