Restaurant Financing: Can a Merchant Cash Advance Help Your Business?

December 8, 2022

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Merchant cash advances can be particularly helpful to restaurant owners since the restaurant business is so largely dependent on credit card and debit card-based transactions. And if you’re a restaurant owner, you know that cash flow is always a challenge. There are so many expenses to pay—rent, food costs, labor—and sometimes it feels like there’s just not enough money to go around.

Some lenders hesitate to lend to startups or businesses in high-risk industries, like restaurants. But merchant cash advances can provide the funding you need to keep your business afloat during tough times, even if your credit is poor. But what exactly is a merchant cash advance? And how can you use one to your benefit?

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What is a Merchant Cash Advance?

A merchant cash advance is a type of funding that allows businesses to borrow against future sales. The MCA provider pays the funds upfront, and in return, the business agrees to repay the MCA with a percentage of its future credit and debit card sales. It should be noted that MCAs are not loans, and are not subject to many of the rules and regulations that loan are subject to.

Because repayment is based on sales volume, merchant cash advances are particularly helpful for businesses with fluctuating or unpredictable income streams. If your restaurant has a timeframe where you’re making a particularly large amount of money, you’ll make larger payments to your MCA provider. The inverse is also true.

Loans with traditional interest rates vary in their expense because faster payment means less money paid in total interest. Not so for an MCA. Instead, MCAs traditionally come with a well-defined total repayment amount.

Let’s say you receive a $25,000 lump sum as a merchant cash advance. The MCA provider will also provide what’s known as a factor rate, which helps establish your total repayment amount. If your factor rate is 1.25, for example, you’ll multiply 25,000 by 1.25 and find that the total repayment amount will be $31,250. No matter how quickly or slowly you pay it back, you’ll pay back $31,250.

What are the Benefits of an MCA for a Restaurant?

As you can see, MCAs can be very expensive. In fact, the effective annual percentage rate (APR) of a merchant cash advance can reach well into the triple digits if it’s paid back quickly, making them some of the more expensive funding options out there.

That’s not to say, however, that cash advances don’t have significant upsides for the restaurant industry. Particularly when compared to traditional small business loans, the upside of MCAs is apparent.

Repayment Flexibility

The restaurant business has ups and downs, slow nights, and wild ones. For small business owners, it can be reassuring to know that your MCA payment amount can be smaller during times when cash is tight. Payments can be big or small, and you never have to worry about a monthly bill because the money comes directly from your credit and debit card processor.


If your restaurant specializes in pizza, you can’t afford to sit around waiting for a traditional loan process to end. You need an oven. Merchant cash advance application processes are very fast. Many companies have a decision to you in just hours, and funding can hit your bank account within a single business day of your application.

Easier to Qualify

Unlike traditional bank loans, MCAs aren’t based on your credit score or history. If you’ve got bad credit, you can still meet your funding needs through a merchant cash advance.

No Collateral is Needed

Some small business financing requires that borrowers put up significant assets to secure the funding they need. Those assets can include real estate holdings, vehicles, inventory, and even receivables. MCAs don’t require any sort of collateral.

Use Flexibility

Once that MCA hits your bank account, you can use it to cover any number of needs. Lenders for other types of small business financing, like equipment loans or SBA loans, often require the borrower to explicitly lay out what that money is going toward. If you want to buy a food truck, may your manager, or slap a fresh coat of paint on your dining room, that’s all fair game with an MCA.

How Restaurants Can Use Merchant Cash Advances

Restaurants can put merchant cash advances to good use in all sorts of ways. But in any use case, remember that an MCA should be used to drive additional revenue. It doesn’t make much fiscal sense to pay the high price for an MCA unless it will lead to easing future financial troubles.

Renovate your space

If you’ve got a long-running restaurant, you might want to consider taking the funds from a restaurant merchant cash advance and renovating your space. Whether that means new branding, seating, signage, or knocking out a wall, that facelift can help drive additional business.

Improve the Kitchen

New booths and menus are nice, but the beating heart of any restaurant is in the back: the kitchen. Look around yours – are there any pieces of equipment that are costing you business? Are you limited by your range’s size, or your oven’s? Is your dishwasher a rickety old machine putting out imperfect results?

On top of just improving or upgrading existing equipment, you could also use a business cash advance to add to your offerings. Are there specialized menu items that’d make sense in your eatery but require an expensive piece of equipment? Maybe you’re considering an industrial-sized mixer to knead freshly-baked bread. Maybe you’re thinking about setting up a full-service coffee bar with espresso drinks. Whatever the project is, an MCA can help fund it.

A merchant cash advance isn’t going to be your first choice, but if you’ve got credit or time issues, an MCA can help bring your kitchen to the next level.

Hire Employees

Few industries have the sort of turnover restaurants do. You’re always going to have to keep an eye on your staff, and during your peak times, it may be necessary to add to the team. Whether that means additional managers, back-of-house staff, or servers and bartenders. An MCA can be a good choice for staffing payments because the additional staff is likely to help you get more food out the door, leading to greater profit.

Working Capital

Business comes and goes. You may find that you’ve had a down period and you’re working with extremely limited working capital. That’s okay! Working capital, or the money left over when you subtract your short-term liabilities from your short-term liquidity, is what allows your business to function. To pay bills, to act on opportunities, or mitigate emergencies. And if you’ve got very little working capital, your company can’t maneuver.

That’s why it might be wise to go after an MCA to bridge the gap. It’ll allow your company to breathe as you make sensible repayments out of credit card transactions.

Final Thoughts

If you’re a restaurant owner in need of working capital, a merchant cash advance could be a good option for you. Easy to qualify for and flexible in terms of how they can be used, merchant cash advances can provide the funding you need to keep your business running smoothly.

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