Restaurants regularly need financing options for a variety of reasons. Perhaps they need a new kitchen or want to change the interior design of the restaurant. It can also happen that they simply have had a bad month, and are unable to meet their normal overhead costs. Restaurant financing is available, but due to the state of the global economy, traditional forms of lending – mainly from local banks – aren’t available anymore. Luckily, there are other options available too. We will review some of these options, but it is best to use an internet comparison website to first and foremost decide which type of restaurant financing is best for you, after which you will be able to compare the different lending companies that offer this type of financing, thereby finding the best value for the money.

Cash Advances Against Merchant Account Sales

Merchant cash advances are an increasingly popular form of financing. They are specifically designed at businesses where the majority of sales is done via credit card, restaurants being one of them. With this type of restaurant financing, a financing company provides money against future credit card sales. Generally, they will require proof of sales for at least six months prior to the application – although some will accept three months – and will then offer up to 100% of these average monthly sales in a single disbursement . The restaurant is then provided with a new credit card terminal in some, but not all cases. From every payment that goes through this terminal, a percentage (usually between 8% and 14%) is taken and sent to the financing company, thereby reducing the balance of the merchant cash advance. One of the great benefits of this type of financing is that if there is ever a period during which sales are low, the repayments will also be low.

Financing Against Future Credit Card Receivables

Credit card receivables financing is very similar to merchant cash advances. The same information is needed before this type of restaurant financing is agreed to and the same type of terminal is used to pay back the loan. The difference is that it is not a loan as such. With merchant cash advances, a sum of money is borrowed against future sales, meaning that the borrower is responsible for the payment of interest. With credit card receivables financing, future sales are bought. This means that there are no interest payments and that the total repayable amount is clear from the word go.

Factoring Your Accounts Receivable

Accounts receivable factoring is a very interesting type of finance. As all types of restaurant financing, it is also quite expensive. With accounts receivable factoring, bills to the restaurant that have not yet been paid are sold to debt collecting agencies, at a discounted rate. For instance, a $2,000 bill will be sold to the agency for around $1,700. This does mean that the restaurant will receive $1,700, but this is less than what they had initially estimated. Another issue is that should the debtor have a valid reason not to pay, the debt will be given back to the restaurant, which will then not see their money and have to repay the debt collecting agency.

Unsecured Business Loans

Unsecured business loans are the fairest loans. Their interest rates are in line with the national average and they do not generally cause the borrower to have further financial difficulties. However, they are incredibly hard to obtain. For restaurant financing, unsecured business loans are usually only available for those restaurants that have an excellent sales history and a squeaky clean credit rating. There are not many that are able to provide the right type of information for these types of loans. Although some unsecured business loans exist for establishments with poor credit ratings, these are very expensive and it may be worth applying for one of the other types of financing mentioned above instead. These loans are generally provided by local lenders.

Clearly, there are quite a number of different Restaurant Financing options available. Other loans that can be used for restaurant financing exist and information on these is available. As stated earlier, it is best to use a price comparison website like SmallBusinessLoanRates.com to first determine what type of financing is best suited for each organization and to make sure that the best possible rates and programs are obtained.

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