4 Restaurant Loan Options for Managing Seasonal Cash Flow Fluctuations

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Wednesday, November 1st, 2017

Restaurant owners don’t need to be reminded of the adage “the only constant in business is change,” because they personally experience it almost like clockwork with seasonal fluctuations — such as the peak summer period from June to September, or the crucial holiday season from late October through to January 1.

And it’s not just restaurants that cater to individual patrons who ride the seasonal demand roller coaster. Those that target business clientele experience demand spikes as well — especially in March when fiscal year budgets are about to roll over, and managers/executives are in a “use it or lose it” situation. Companies can easily determine that it’s a smart idea to treat colleagues to a team-building lunch, or clients to a relationship-building dinner.

Naturally, seasonal demand surges are welcome news for restaurant owners. But at the same time, managing cash flow can be challenging; especially since the window of opportunity is short-lived. That’s where restaurant loans enter the picture, and provide much-needed stability. Here are four popular options:  

Restaurant Loan Option #1: Working Capital Loans

Working capital loans provide restaurant owners with a cash infusion, which is repaid per fixed installments (usually monthly). Unlike conventional bank loans, restaurant owners have full control over when, how much, and where they allocate their funding. The application process is also rapid, and good credit isn’t mandatory.

Restaurant Loan Option #2: Merchant Cash Advances

Technically, merchant cash advances aren’t a type of restaurant loan — they are (as the name implies) an advance on future sales. However, since they provide restaurant owners with a rapid cash infusion, they’re part of the restaurant loan conversation. Here’s how they work:

For an agreed upon repayment amount, restaurant owners receive a cash infusion that, like a working capital loan, they can spend on whatever they wish, and when they wish. But unlike a working capital loan, a portion of the merchant cash advance is paid back automatically at the end of each business day, and is based on a small percentage of payment card (credit and debit card) sales. This continues until the advance is entirely paid back.

Returning to a key point raised earlier: one of the biggest advantages of a merchant cash advance is that restaurant owners do not pay more if they take longer than planned or anticipated to repay the full amount. Again, this is because the repayment is based on a percentage of payment card sales — not on a specific duration. As such, whether the advance is paid back in 36 months or 48 months (for example), the total cost of borrowing will remain the same.

Restaurant Loan Option #3: Business Line of Credit

Yet again, a business line of credit isn’t technically a restaurant loan. It’s a funding source that restaurant owners tap into on an as-needed basis. Accessing funds is instant and can be done online, and interest is only paid on the amount borrowed. For this reason, many restaurant owners choose to combine a working capital loan or merchant cash advance with a business line of credit.

Restaurant Loan Option #4: Equipment Financing

Equipment financing is a secure restaurant loan with a key advantage: the collateral is the to-be-purchased equipment instead of other assets, such as buildings, vehicles, securities, etc. This is optimal for restaurant owners who either don’t have enough assets for a conventional secured business loan, or want to reduce their risk by leveraging the equity in their equipment.  

Learn More

We know restaurant loans are difficult to come by through traditional channels, like banks. Even with flawless business history and excellent credit, banks believe the restaurant industry is too risky due to these seasonal fluctuations. So if you need restaurant financing and you’ve been turned down by a bank before, check out our free eBook “How to Get Business Funding When Banks Say No” for more funding tips:

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