With restaurants abounding in every neighborhood, one need not search far to find a spot to dine in because more and more restaurants are cropping up every year. Even with the stiff competition, it is still possible to profit from owning a restaurant.
While it is an exciting prospect to own your own establishment and a restaurant at that, you have to understand the risks involved, especially when it comes to business funding for restaurants. According to surveys realized on startups, nearly 60 percent of all new businesses never make it beyond the opening year.
If you don’t want to be in the 60% of businesses that fail, and want to make your business survive and flourish, you need to have a robust business plan and plenty of funds. Without proper funding, you cannot establish your restaurant. You have to consider a good funding option like Merchant cash advance. Why is it good? Here are a few considerations and the reasons for this funding option being the best one for your restaurant.
Why conventional loans are not apt for your business now
Conventional loans are not favored by small businesses anymore and are not considered good business funding for restaurants in particular because
In the wake of the recession, banks have increased the loan requirements and are extra cautious about the portfolio risks. Since the money for the loans comes from you and other customers like you, they are cautious about lending it. With small businesses carrying a higher risk than large scale businesses, banks are further stringent when it comes to business funding for restaurants and other establishments.
The decline in community banks:
The success rate of a small business getting a loan approved is higher with a community bank when compared to a big financial institution. However, community banks are reducing in number and with a lower number of such banks, business owners find it difficult to get their loan approved in a traditional bank.
Smaller loans are less profitable:
Since small businesses need only smaller loans that are less than $500,000, it is not considered as profitable as the bigger loans they normally lend to larger corporations. This is because underwriting the loan whether it is a million dollars or a $100,000 loan costs the same for banks. They get to make more money when they concentrate on the bigger loans. Since banks operate solely on profit, this kind of outlook is natural.
No wonder there has been a 20% decline in bank loans that offer business funding for restaurants and other small businesses ever since the recession began and it continues on its downward spiral.
Purpose of a loan
Irrespective of whether you are setting up a restaurant or any other business, you should consider certain factors before you start thinking of the best loan option for you. These include
- The amount of capital you need
- The purpose of the funds you have applied the loan for
- The interest rate and term you can afford to payback
- Your present credit score
- The annual revenue of your business
When you know about all of the above factors, you can decide on the best loan that would suit you. One reason that prevents many entrepreneurs looking for business funding for restaurants avoid traditional loans is due to the difficult loan qualification criteria. Most often, lenders require proof of strong revenue, credit, and cash flow. If your business does not fit under any of these three factors you have an alternative lending option – Merchant Cash Advance.
Merchant Cash Advance
Although this option is often overlooked, it is an important consideration when you are in a financial crunch and want access to funds quickly.
Also called MCA, this is a form of cash advance rather than a loan. It is quicker and easier to secure when compared to the conventional loans. The cash advance you acquire is to be paid back by means of a fixed percentage of the sales you complete via credit card payments. If your business involves plenty of sales via credit card, MCA is the right solution for you.
While it is considerably expensive, when compared to the restrictions that other loans have when it comes to lending money, opting for merchant cash advance as business funding for restaurants is considered wise. But make sure your business can afford the expense before you take the plunge.
Bad credit score is better
Merchant cash advance is money that a restaurant owner gets in advance anticipating future receipt or sales via credit card payments. A restaurant owner’s personal credit does not influence the cash advance approval. Thus approval rate is higher with this type of business funding for restaurants.
Merchant cash advance lenders consider the day to day credit card payments you receive via sales to decide on the amount you can pay on time. This implies you get funds today and can pay back tomorrow even with a credit score that is not perfect.
Most often the lenders are not dependent on big banks. This does not mean that the money has no strings tied to it.
The fee or interest is higher than what you pay the banks. However, this alternative lending option is an outstanding solution for prospective restaurateurs who are looking for a credible loan provider to consider lending money to them.
Since time is money for any type or size of business including restaurants, merchant cash advance is the best business funding for restaurants. The application is a very easy and quick process. The history of debit and credit card sales is more often the only requirement for the funding specialist to provide a quote, revise, approve it and provide the funds. More often than not, this takes just around 24 hours.
Undoubtedly, more business funding for restaurants comes through merchant cash advance than bank loans. The simple and fast cash advance system does not leave any space for delays. The reasons cited for your loan application being rejected by a traditional bank will not prevent you from applying and receiving a merchant cash advance. Thus, it remains the best funding you can acquire for your restaurant business.