Finding Financing for Pubs and Restaurants: Bank Loans vs Merchant Cash Advances

Finding Financing for Pubs and Restaurants: Bank Loans vs Merchant Cash Advances

Bouncing back from the pandemic has been a persistent struggle for hospitality businesses, especially restaurants and pubs. In the UK especially, changing rules and a shortage of available workers have made it harder for small businesses to capitalise on the reopening of businesses post-lockdown.

One of the greatest challenges for restaurants and pubs in recent times has been securing access to funds. Restaurants and pubs, typically considered financially risky enterprises at the best of times, have found themselves even more vulnerable just as lockdown restrictions have lifted.

But successful pubs and restaurant businesses are leveraging merchant cash advances instead of loans to support their cash flow management and get back on their feet.

In this article, we’ll explore the main differences that separate traditional bank loans from merchant cash advances. We’ll explore how restaurants and pubs can take advantage of the best cash flow management services and identify which option is better for your pub or restaurant business.


What is a Merchant Cash Advance (MCA)? 

A merchant cash advance is a type of business funding that is suitable for businesses that process payments through a card machine (PDQ) and/or online payment system.

Here at 365 Business Finance, we rely on, and assess, your business’ recent debit and credit card transactions to determine affordability (i.e., is your business seasonal, are sales consistent, how long have you been trading?) and produce a funding offer tailored for your business.

As a rule of thumb, we are usually able to fund up to 100% of your business’s monthly credit and debit card turnover. For example, a business that processes £10,000 per month in credit and debit card sales, could be eligible to receive £10,000 in funding.

Unlike a traditional bank loan, there are no interest rates or fixed monthly payments to worry about. Instead, repayments are taken from a small percentage of your future debit and credit card payments.

This means repayments mirror the ups and downs of your business, easing financial stress — when you have a quiet period, you simply repay less, and when business picks up, you repay more.

There’s no APR as there is no fixed fee, just one all-inclusive cost that’s agreed on at the start, which never changes.


Finding out if you’re eligible for a merchant cash advance is simple. You must:

- Be trading for a minimum of 6 months.

- Process payments through a card machine (PDQ) and/or online payment system.

- Have an average monthly credit and debit card turnover of at least £5,000.

- Be based in the UK.

Why did Merchant Cash Advances Become Necessary?

Banks are often seen as a traditional and reliable source for financing a business – they are regulated entities, with guarantees ensuring that sources of finance are protected if something goes wrong in the financial system.

However, banks have long since used this privileged position to minimise their risk at the expense of the lender. Terms and conditions are very restrictive, the process is often slow, and high risk industries can find themselves with extreme interest rates that can hobble growth.

Restaurants and pubs, in particular, get a pretty rough deal as they often need rapid injections of cash. Even before the pandemic, UK restaurants and pubs were struggling to survive - rising costs, reduced consumer spending, and an over-saturated market can make owning a restaurant or pub a risky endeavour – and one that banks are hesitant to finance. 

It’s no surprise then that securing a bank loan for a restaurant or pub is often a very slow and challenging process, sometimes resulting in rejected applications.

A merchant cash advance is an alternative method of securing immediate capital, without the long processing times or difficulties presented by traditional bank loans. Hospitality businesses like restaurants and pubs can avoid using traditional bank loans whilst accessing cash quickly, helping to keep their companies afloat in an unpredictable economy.


What Kind of Terms and Conditions can a Restaurant or Pub Expect From a Bank?

So what are some of the unfavourable conditions that a restaurant or pub should be aware of before securing a traditional bank loan?

- Admin charges and late fees.

- Fixed monthly payments, irrespective of business performance.

- Security* usually required.

- Detailed business plans need submitting.

- Interest charged according to the time elapsed.

- Lengthy approval process.

- No flexibility with repayment period.

*Security in a traditional bank loan means that assets are placed against the value of the loan. Should the lender default on the loan, their assets are seized to make up as much of the missing value as possible. A property is a typical example of acceptable collateral.

As a result, pubs and restaurants have turned to other sources of financial support for their businesses.


How are Merchant Cash Advances Better for Restaurants and Pubs? 

Restaurants and pubs can leverage the following benefits when securing a merchant cash advance with us:

- Approval within 24 hours.

- Flexible repayment period.

- Funding within days.

- No admin charges.

- No security or business plans required.

- No interest or late fees.

- No fixed monthly payments, as you only repay when customers pay you.

- No hard credit checks that impact your credit score.

Merchant cash advances provide hospitality businesses greater flexibility, faster access to funds, and a model that rewards an increase in business. As such, it’s not surprising that merchant cash advances have become an indispensable lifeline for cash strapped restaurants and pubs as they navigate an uncertain economic recovery. 


Merchant Cash Advances: A Flexible Financial Lifeline for Restaurants and Pubs

Traditional bank loans are hard to secure. For pubs and restaurants, the speed with which they can receive funds is especially critical to their success. Merchant cash advances provide a suitable alternative that can support their business when they need it the most.

So long as businesses accept credit and debit card payments, they can steadily repay merchant cash advances without sacrificing critical revenue. With the right funding option, pubs and restaurants can steady themselves financially at a critical juncture.

For UK SMEs in particular, a merchant cash advance has been an ideal source of business finance throughout the pandemic because:

- There are no fixed monthly payments to worry about.

- You only repay when customers pay you (so you don't have to stress during lockdowns or uncertain periods).

- It offers quick capital, with funds deposited into your account within just a few days. Even if you have taken out government loans or grants during the pandemic, is still an option to support your business.

As such, for many UK businesses, a merchant cash advance has been key in maintaining business cash flow during the pandemic – it’s an ideal funding solution for SMEs who need a ‘pick-me-up’ in tough times.


Bounce Back Strong: How 365 Business Finance Can Support Your Business

At 365 Business Finance, we offer merchant cash advances to restaurants and pubs across the United Kingdom. Merchant cash advances are designed as a quick way for any business that accepts credit or debit cards to raise capital without the need for a bank loan or hefty overdraft.

365 Business Finance offers £5,000 to £200,000 in unsecured cash advances for UK SMEs with no APRs, hidden costs or fixed monthly payments, letting you focus on running your business.

Our merchant cash advances can help raise critical capital for your hospitality business so that you’re in a prime position to bounce back from the pandemic.

Get a tailored quote today, and see how we could help your business reach its full potential.

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