While running a pub is a British institution, it is not without its challenges, particularly when it comes to financial fluctuations. One week, the profits from a bustling beer garden overwhelm you; the next, it’s a slow month with a broken cellar cooler.
When it comes to getting your loan fast, what can you do when the banks drag their feet? For most publicans, the solution is found in a financial product tailored to the specific pace of trade in hospitality: The Merchant Cash Advance.
This guide will take you through everything required to apply for a merchant cash advance for your pub or bar. We’ll go over how it works and what the cash can do for your business, and then we’ll help you get a deal that keeps money in your wallet as steadily as your best-selling ale.
What Is Merchant Cash Advance For Pubs?
Essentially, an MCA can give your pub an immediate infusion of cash. This form of financing isn’t a traditional loan. Instead, the provider just keeps a part of your future credit and debit sales until the loan is repaid.
Consider it an advance on future card income. Repayments are effortless: a pre-agreed percentage of your daily card sales are automatically collected until the advance and the fixed fee are repaid. It is the repayment that makes Merchant Cash Advance an inherently flexible repayment plan.
On a busy Saturday, you will pay back more, while on a slow Wednesday, you will pay back less. Merchant Cash Advance is a funding solution that adapts to the natural flow of your pub’s business, making it a suitable option for both pubs and bars.
Do you need a Merchant Cash Advance?
How Does A Pub Spend A Merchant Cash Advance?
The main benefit of this kind of financing is that it’s flexible. You are the expert in your business, and you can use the capital to tackle your biggest challenges or seize your greatest opportunities.
Here are the common uses of Merchant Cash Advance for pub or bar businesses:
- Emergency Equipment Repair: If the heating system, oven or refrigeration unit gives out unexpectedly, your pub could be out of business for days. An MCA offers the quick cash you need to get immediate equipment repairs and keep your business running.
- Buy Supplies in Bulk: With merchant cash advances, you can either purchase a few cases of a particular beer for a festival weekend or take advantage of deals on your favourite spirits.
- Increase Marketing: You can use an MCA to invest in a new website, advertise a new menu launch, or promote a selection of live music events to attract more customers.
- Fill a Cash Flow Gap: Spend the money on keeping your head just above water during a known slow season in business, making sure you don’t see losses in your pub year-round.
Advantages And Disadvantages Of Merchant Cash Advances For Pubs
To make any financial decision, it’s important to consider the pros and cons to determine whether it will suit your hospitality business:
The Advantages
- Higher Cost of Capital: While merchant cash advances save time and offer convenience, they also incur higher costs. A merchant cash advance is often pricier than a conventional long-term bank loan.
- Effects on Your Day-to-Day Cashflow: You are literally short a day’s takings. When business gets slow, it feels more keen, and you really need to guard your cash flow.
- Risk Of A Debt Cycle: The convenience factor can entice some entrepreneurs to take out numerous advances, which may result in falling into a cycle where much of their revenue is devoted to making payments.
The Disadvantages
- Higher Cost of Capital: While merchant cash advances save time and offer convenience, they also incur higher costs. A merchant cash advance is often pricier than a conventional long-term bank loan.
- Effects on Your Day-to-Day Cashflow: You are literally short a day’s takings. When business gets slow, it feels more keen, and you really need to guard your cash flow.
- Risk Of A Debt Cycle: The convenience factor can entice some entrepreneurs to take out numerous advances, which may result in falling into a cycle where much of their revenue is devoted to making payments.
Merchant Cash Advances vs. Bank Loans for Pubs
Here’s a clear comparison between a merchant cash advance and a traditional bank loan:
| Feature | Merchant Cash Advance | Traditional Bank Loan |
|---|---|---|
|
Funding Speed |
Very Fast (24-72 hours) |
Slow (Several weeks or more) |
|
Repayment Structure |
Percentage of daily card sales |
Fixed monthly instalment |
|
Credit Check |
Business health and card sales |
Strong business and personal credit history |
|
Security |
No collateral is required |
You must provide either a personal guarantee or assets to serve as security. |
|
Best Suited For |
Short-term critical needs |
Long-term, large-scale investments |
How Do I Qualify For Merchant Cash Advance In The UK?
Merchant cash advance has an arguably lower barrier to entry as compared to a bank loan. Most providers will look for:
- Regular Sales On A Card Machine: You will usually have to handle a certain value of card transactions per month.
- Trading History: Most MCA providers require you to have been in business for at least 3 to 6 months.
- Bank and Merchant Statements: up-to-date records will be required for confirming your sales volume and business longevity.
How To Find The Best Merchant Cash Advance Provider For Your Pub?
Not all MCA providers are the same. To get the right deal for your business, here are some steps that can help you:
- Factor Rate Comparison: The multiplication factor that is used to determine the total payback (e.g., if you borrow £10,000 at a 1.25 factor rate, your total repayment will be £12,500). So you want to get the lowest factor rate you can.
- Check the Holdback Rate: Holdback rate is how much of your daily card sales will be skimmed off to repay the advance. So, this should be a number you can meet without overburdening your day-to-day functions.
- Read the Agreement: Search for transparency. Ensure there are no buried setup fees or early repayment penalties.
Compare Merchant Cash Advance Providers For Pubs With ComparedBusiness UK!
As a pub owner, looking for merchant cash advance providers can be time-consuming and overwhelming. Why spend hours doing it yourself when we can do the work for you in minutes?
Trusted pub owners partner with ComparedBusiness UK, where we assist you at every step in finding the best funding solution for your pub business.
We have a vast range of UK lenders who offer merchant cash advances specifically for hospitality businesses. In just minutes, you can:
- Get custom quotes from multiple providers
- Compare factor rates next to each other
- Decide wisely, with full visibility of the facts
Don’t let a shortage of cash or an unexpected emergency hurt your pub business. Get Merchant Cash Advance now.
Compare the best merchant cash providers & secure your pub’s future.
FAQs
Yes, merchant cash advance providers are concerned with the amount and frequency of your card sales. A favourable trading record will outweigh concerns about your personal credit file.
This is the main concern of pub owners. The repayment is a percentage of your sales, so if you’re making less, your repayments for that day or week are also less.
The cost is based around the factor rate. This rate is multiplied by the advance amount to calculate your total repayment. For instance, an £8,000 advance with a 1.3 factor rate will result in you repaying £10,400.
