What are some of the reasons restaurants use working capital business loans? Whether you are running a diner, a steakhouse, a bistro, or even just a bar, there are several ways that a business cash advance, merchant cash advance, or business loan can help.
Or course, from time to time a restaurant owner finds himself in the position where he can use a few extra bucks to pay some bills or to make payroll. Sure, we can help with those issues, but the businesses that succeed most with these programs use the money in such a way that they see a positive return on investment (ROI). A typical example for a restaurant to use a merchant cash advance to see a positive ROI would be to expand the amount of seating the establishment provides. Let’s say a successful restaurant currently only has 20 tables/booths and does $20,000 per week in sales. There’s a line out the door every night and reservations are always completely booked. These are obviously good problems for a business to have.
Now is the time to expand. You want to add 10 more tables and you need to hire extra staff to service the increased customer base. You project that the expansion will cost $80,000 and you need it right away since you are already turning away business.
This is where a merchant cash advance helps. You can be funded in as soon as 24 hours and you will not be locked into a multi year payback commitment for what is only a short term need. Even though the rates for this type of quick business loan are higher than traditional financing, you will easily come out ahead if you look at the ROI. If you do $20,000 per week with only 20 tables, it stands to reason that you will do $30,000 per week with 30 tables. That’s over $40,000 per month in additional revenue! Even after paying expenses you have made up the cost of the merchant cash advance in a short amount of time.
The same logic would apply to other utilization of the funds as well. If you have a successful marketing campaign with a proven track record of success, look at the ROI of the campaign compared with the cost of capital. Even if in the short term financing the campaign is a break even proposition, eventually the new loyal customers you acquire will show a positive ROI down the road.
From time to time you may find the need to use a merchant cash advance or quick business loan to pay a tax obligation or to update some kitchen equipment, but when it comes to long term success with these finance programs you need to consider the ROI.