How to Use Merchant Cash Advances for Hospitality Businesses

The hospitality business, especially the restaurant industry, employs about 10% of the U.S. workforce. While the restaurant industry as a whole is almost ever-growing and stable, individual restaurants face challenges in both good and bad economic times. If your restaurant is in a tricky spot, a merchant cash advance could be a great solution.

How is it different than a loan?

A cash advance is the sale of future revenue to a financer in exchange for immediate cash. The funding company typically receives a 5-20% share of receivables and they provide those funds to the business owner. Since this transaction is a sale of revenue at a discount, no lending occurs, making it drastically different than a bank loan in which a business borrows a sum and agrees to pay it back with interest over an agreed-upon term.

What can you use it for?

Merchant cash advances can be used for nearly any type of hospitality business expense. You could use one if you need funds to make payroll or hire additional employees. Advances can be used to purchase equipment or even property. They can cover remodel or expansion expenses. An advance can even be used for taxes, or in case of an emergency.

Are there different types?

Typically, there are two different types of merchant cash advances available to use for hospitality business expenses: short term and long term. Short term advances usually have a term of 4 to 8 months, whether this is the restaurant’s only advance or if they have multiple (stacked) advances. A long term advance usually lasts from 12-24 months if it’s a first position ( solitary) advance, or 6-18 months if it’s a stacked advance.

How is the money repaid?

While cash advances are very different from bank loans, many of the same principles apply to the approval process. Lenders will want to check a business’ credit and see their hospitality business bank statements. If they decide to green light an advance, they will set up one of two methods for repayment, either ACH or MCA. In an ACH repayment model, the business repays each day by having a specified amount transferred to the funder by way of an automated clearing house. In an MCA arrangement, the repayment is made with a percentage of credit card transactions being sent directly to the funding company.

With the ups and downs of day-to-day operations in the hospitality business, you may need to secure immediate cash. Merchant cash advances can make that happen.

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