Pros & Cons Merchant Cash Advance Vs. Bank Loans For Restaurant Business

Merchant Cash Advance Vs. Bank Loans

Your restaurant business is going well and growing, but to keep you ahead of the competition you need more capital to finance your business plan to continue to grow. Unless you win a lottery or inherit a lot of money, getting loans from financial institution would be your best choice.  Unfortunately, for traditional banks, the restaurant industry is seen as a high-risk investment with low confidence of guaranteed repayment, which makes it difficult for restaurateurs to get loans from these traditional institutions.

Thankfully, there are still alternatives to the traditional banks, such as merchant cash advance. This non-traditional lending provider is popular with small to medium business owners due to its flexibility and quick funding approach. For most restaurant owners, merchant cash advance is usually their ideal choice when they need to get funding for their business, especially for the relatively new restaurants. But many restaurateurs still don’t understand the difference between merchant cash advance and a bank loan, hence the hesitation to approach these alternative fundings even though they really need the loan.

It is smart to be cautious when choosing the right funding partner for your restaurant business. You must know exactly what your business goals are, your current revenue and cash flow performance, and your risk tolerance level. If you need help to decide between merchant cash advance and bank loans for your restaurant, here are a few of the pros & cons of merchant cash advance and bank loans:

1. Qualification Process and Speed
When you request a loan from traditional banks, they will require you to provide bank statements, credit ratings, tax records, collateral and other paperwork. The review process will take weeks or months, and the probability of the getting the loan you need is very low because even a successful business can be denied if the credit history is not ideal. Especially after the financial crisis in 2008, the access to traditional lending becomes impossible for restaurant owners because banks consider the industry as high risk.

Merchant cash advance will request bank statements and your credit card sales transaction history, however, they don’t need excellent credit history or collateral, which most small business owners don’t have. To determine your ability to repay the cash advance, merchant cash advance providers use your credit card past performance as determining factor, hence the review process is shorter than traditional banks. Within five days after you apply for the loan, you will get the fund you need.

2. Interest Rates and Repayment Terms
Bank loans follow the strict laws applied to a traditional funding system that regulates the interest rates,  loan term, and schedule, with strict penalty policy if you failed to follow those terms. If your restaurant has not yet maintained a steady performance every month, meeting these payment terms would be tough and you will have to face the risk of paying penalty fee every month and hurts your business instead of growing it.

Whereas merchant cash advance is technically not a loan, it’s a cash advance given to you based on your future sales performance. Interest rates is decided based on your past credit card transaction sales, with flexible repayment terms. The higher sales volume you get every day, the quicker you repay your loan.

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