Many restaurants have been turning to merchant cash advances to stay afloat during the pandemic. While these alternative funding products can help manage the ebb and flow of revenue that is customary in the restaurant industry, businesses are currently at a higher risk of default. If your restaurant is struggling to meet the terms of an MCA agreement, turn to ReconcileMyMCA.com for an MCA attorney.
Our experienced debt relief specialists work with all types of small businesses nationwide to reconcile their cash advances. We understand the unprecedented challenges facing restaurant owners and can help to protect your business and personal assets. Contact us today to learn about your options.
How does a restaurant merchant cash advance work? From an MCA Attorney
An MCA provides restaurants with needed funds through the purchase of their future income from guests, such as credit card and debit card sales. Under a merchant cash advance agreement, the owner is paid a lump sum upfront in exchange for a percentage of those future sales. The restaurant owner is not paying back a loan, but rather forwarding a portion of purchases made through credit cards to the MCA provider.
An MCA offers restaurants advantages over a traditional business loan. In particular, a cash advance does not require repaying principal and interest as a loan does or limit how the proceeds can be used. An MCA gives a restaurant owner access to working capital that can be used to fund a variety of projects, such as:
Investing in Technology
Regardless of the type of restaurant (e.g. a fine dining or fast-casual restaurant), it is crucial to have a modern point-of-sale (POS) system with reliable ticketing processes. From EMV-chip readers to smartphone payment apps, your restaurant needs to appeal to guests who are accustomed to these convenient payment methods. Moreover, upgrading bookkeeping and inventory systems can help to reduce costs and improve profit margins.
Finally, a typical guest today will likely book a reservation or place an order online, so it is wise to have a website that is mobile-friendly and easy to navigate. In short, a merchant cash advance can help you invest in state-of-the-art technology that allows you to remain competitive in the restaurant and hospitality space.
Covering Daily Operations
A merchant cash advance can help a restaurant fund its day-to-day operating costs, such as replacing worn menu covers, updating seasonal menus and wine lists, upgrading check presenters, and purchasing new staff uniforms. A lump-sum payment can also fund events to promote the establishment, such as offering special tasting dinners, booking entertainment, participating in “restaurant week,” and other strategies to improve sales.
Making Front of the House Improvements
At some point, all restaurants need to make front-of-the-house (FOH) improvements: dining rooms, tables, seats, bars, stools, must be replaced from time to time. Even replacing simple items such as plates, glassware and silverware is important to getting good customer reviews (of course, so is good food). An MCA can help a restaurant owner make these and other FOH improvements, such as adding an outdoor patio, revising the table layout in the dining area, investing in new products or increasing staffing to accommodate seasonal changes.
Cutting Back of House Expenses
Restaurant owners must also focus on back of the house (BOH) expenses. This can involve upgrading water heaters, dishwashers, refrigerators, deep fryers, ovens and other appliances to high-efficiency models. Renovations may also be necessary to bring the BOH up to code and make the space safe for staff, thereby reducing the number of potential workplace accidents and injuries. While these are costly projects that require upfront money to complete, making these improvements can help to save money in the long run.
In sum, a merchant cash advance gives a restaurant the flexibility to improve and upgrade, without the restrictions that may come with a traditional business loan. Business owners can use the funds for just about any purpose: stocking up on inventory, renovating, expanding, making payroll or as working capital.
The Risks of Restaurant Merchant Cash Advances – MCA Attorney
In spite of the benefits of an MCA, there are also risks. Unlike consumer loans, merchant cash advances are virtually unregulated, so restaurant owners don’t have much legal protection. This matters because MCA agreements typically contain onerous terms such a Confession of Judgment (COJ) and a personal guarantee.
A COJ is a provision whereby the restaurant owner accepts liability for repaying the advance and waives his or her legal defenses. In the event of default, the MCA provider does not need to file a debt collection lawsuit. The COJ allows the funder to quickly obtain a default judgment from the court and begin seizing the business assets. In addition, signing a personal guarantee puts your home, bank accounts, and other personal assets at risk.
How ReconcileMyMCA.com Helps Restaurant Owners
If you are at risk of defaulting on a merchant cash advance, we will negotiate with your MCA provider to restructure the payment plan. If the funder refuses to negotiate according to the terms of the reconciliation clause, we may be able to file a lawsuit for breach of contract. Above all, our objective is to help maintain the viability of your restaurant during these unprecedented times. Contact our office today or complete the convenient intake form to speak with an experienced MCA attorney!