Good Sources of Financing that Won’t Destroy Your Restaurant Business
Are you aware that the very lifeline meant to help your restaurant grow could be the one thing holding it back, or worse, killing it? That's right, that easy-to-get wad of cash to help you get through the tough times may not be the silver bullet you think it is. Today, I’m taking you into the world of credit card business loans and why they may not be the solution you're looking for. Further, I’ll discuss good sources of financing that won’t destroy your restaurant business.
Restaurant business financing that hurts your business
Credit card business loans, including merchant cash advances and business credit cards, can offer access to cash with minimal paperwork, funding based on future sales. At a glance, they seem perfect: fast cash to keep your restaurant humming along. But here's the catch: when a customer swipes their card at your restaurant, a portion of that sale isn't going into your account to cover expenses and grow your business; instead, it's servicing your debt.
These loans come in two flavors:
- Flat-fee loans
- Loans with high-interest rates.
While flat-fee loans might seem straightforward, they can disguise the true cost of borrowing. If you're paying a flat fee loan on a short-term basis, the effective annual percentage rate (APR) can be astronomical, making it one of the most expensive ways to borrow.
With high-interest rates, the situation can quickly become dire; the amount you owe can rapidly increase, consuming a larger portion of your revenue, making it harder for you to operate profitably.
Imagine your restaurant as a bustling hub of activity where behind the scenes, you're constantly playing catch-up because a significant chunk of your revenue is going towards repaying a loan. The fast repayment schedule can force you to make cuts in quality and service just to keep your doors open.
But it doesn't have to be this way. There are healthier options available.
Healthier ways to raise fund in your restaurant business
Examples of healthier loans include traditional bank loans or SBA loans, though they might be challenging to obtain. Sometimes, you need that money faster. Even crowdfunding or other creative ways of finding money can offer more manageable terms that align with your restaurant's growth without suffocating it.
Another way to approach this is by managing your cash flow. While it may sound counterintuitive, delaying payments to vendors or other accounts payable can provide you with the breathing room your restaurant needs. By negotiating terms with suppliers to extend payment deadlines, you can retain the cash you need to take care of your immediate needs. However, this strategy requires open communication and maintaining strong relationships with your vendors to ensure it's mutually beneficial.
Comparing the costs directly between quick cash advances and delaying payments, it becomes evident that while both methods involve a trade-off, the increased flexibility in cash flow management without the high cost of borrowing might be a more sustainable choice for your restaurant in the long run.
Before you sign that dotted line, think about the long-term impact on your restaurant's cash flow and profitability. Remember, the goal is to build a foundation for long-term success, not just a short-term fix. Wise borrowing practices are crucial, but so is innovative cash flow management.
Be sure to visit my YouTube channel for more helpful restaurant management video tips.
