The restaurant business is quite a competitive and tricky one all over the world. The initial capital required is quite high and so is the risk. In fact, many restaurants fail in the first year of business; the numbers vary but the conclusion is the same: opening a restaurant is a very complicated business and more often than not is doomed to failure. This is due to a number of reasons including lack of customer loyalty, lack of originality, bad location and other reasons but one of the more important reasons is lack of funds.
A restaurant is in the service industry and like any other product in that industry it takes time for the customers to recognise its worth and provide it with regular sales. However, until the break-even is achieved the restaurant cannot cut back on costs and can certainly not compromise on quality. This in turn requires a steady cash flow that allows the restaurant to be sustained even when it is not generating adequate daily sales – something that is bound to happen and should be anticipated during the nascent stages.
Due to the ups and downs of the restaurant industry, acquiring capital through the regular means i.e. a small business loan is not always an easy process. Banks rely heavily on your personal credit history when reviewing a request for a business loan for a restaurant as they are aware of the huge risk that impending failure brings with it. To avoid this tiresome and straining process, a restaurant owner can turn to a Business Cash Advance mechanism. A cash advance lender will provide a more adequate alternative means of financing a restaurant.
Cash advance generally relies on credit card payments and luckily restaurants process a high amount of such sales. This makes business cash advance a perfect funding opportunity for restaurants. The way this works is that you can secure a loan or cash advance for your restaurant against the future credit card sales that you aim to make. The amount of cash requested should be based on your realistic projections of future sales.
There are different procedures of repayment but essentially a pre-determined percentage of your future credit card sales is automatically reserved for paying off your loan to the cash advance lender. The advantage that restaurant owners have with the business cash advance as opposed to the more traditional bank loan is that the rate of monthly payments can be altered. Unlike a business loan from a bank that has more stringent repayment conditions, a loan through the business cash advance system provides the opportunity to pay back a lower amount during a period when sales are low.
This is ideal for a restaurant owner because this urges him or her to increase sales so as to pay off the loan soon, but also provides a temporary cushion during the time that the sales are not going so well. One further advantage of a loan through the business cash advance system rather than the traditional bank loan system is that the borrower does not have to specify where exactly the money will be spent in the business. The business cash advance lender merely lends the money to the restaurant owner to be spent on the restaurant in exchange for a percentage of future credit card sales. However, the restaurant owner is now free to allocate the budget wherever he sees fit and is also at liberty to move around the budget as he goes rather than spend only on what was agreed upon with the bank.
For example, the restaurant owner can spend more on buying better wine but if he sees that that is not what is required he can easily shift the focus and the funding on wherever else it may be required, more advertising perhaps.
In this way, for a complicated business like that of owning a restaurant, a business cash advance loan allows more freedom to the owner. The owner can use this to his advantage by having more control over the spending and has less to worry about during slower sales periods. It can provide the necessary funds to keep the business going and encourages the restaurant owner to use the capital productively to increase sales so as to pay off the lender in time. The restaurant owner saves the hassle of tedious bank paperwork and is provided with the capital to ensure the survival of the restaurant.