For many restaurants, the summer is their busy season. Customer activity reaches its annual peak, giving you the chance to make the most out of this increased interest. Like any experienced restaurateur, you understood that the busy season can quickly go from a blessing into a curse without sufficient preparation. And prepare you did. You hired extra staff, ramped up local advertising, replaced dated kitchen equipment, and worked out a deal with your suppliers to ensure you wouldn’t run out of any key items. But now the summer has come to a close. Customer activity has dropped, not just for you but nearly all local businesses in your area.
Even though not a single customer left your establishment unhappy, the notoriously high costs of operating a thriving restaurant are threatening your momentum. You need to find a way to not let all of your profits and investments go to waste on operational expenses.
Maintaining profits and savings when demand slows
After a little research, you find out that plenty of restaurants use working capital loans to stay vital during slow periods. The funds prevent them from having to fire the new staff members who could eventually become assistant managers. They can maintain a steady advertising budget so new customers can easily find them on social media or through a Google search. Perhaps the greatest advantage, however, is continuing to draw a profit and save money as the gap between revenue and expenses begins to shrink. And in the restaurant business, even the slightest change in that gap can have a major impact on cash flow overall.
You know you need additional working capital. But there are numerous types of working capital loans, all of which seem equally popular. In order to determine which variation makes the most sense for you, you must think carefully about the purpose of the loan as well as your financial future.
Exploring different repayment structures
When people say “working capital loan,” they are usually referring to a short-term business loan that is sometimes as low as just a few thousand dollars. The amount is based on the total costs of your monthly expenses and can be paid off in as little as four months. If you work with a company like United Capital Source, payments can be made on a variety of frequencies, such as monthly, bi-weekly, etc. At first, this probably sounds like the logical choice for this situation. But before putting all of your eggs in one basket, take a little more time to think about what you are anticipating for the upcoming season.
All businesses must be in a constant state of forward motion in order to succeed. They must invest in their future by either improving existing strategies or experimenting with new ones. So, maybe you don’t just need enough money to pay your bills and employees. Maybe you need a little more money to additionally ensure that sales will improve once the slow period comes to an end.
Why a merchant cash advance is so advantageous
Perhaps the second most popular type of working capital loan is a merchant cash advance. Restaurants tend to favor merchant cash advances because payments are automatically deducted from daily debit and credit card sales. A month or two with a low number of such transactions just means a low payment. Compared to a short-term working capital loan, a merchant cash advance would theoretically give you more money to play around with over the next few months. This money could go towards promotional campaigns, buying some new furniture, or ordering bulk inventory for this season and the next. Certain items will most likely be available for discounts during industry-wide slow seasons.
Should you opt for a business lines of credit instead?
You may have heard that working capital loans are the most sensible choice for a business looking for additional working capital. It seems like the only option that is designed to pay monthly expenses. At United Capital Source, however, one of our top priorities is letting clients know that not every business funding program can only be used for traditional purposes. A business line of credit, for example, is not traditionally used to cover bills and payroll during a rough patch. But nowadays, plenty of restaurants utilize business lines of credit because they are naturally prone to temporary cash flow shortages.
With a business line of credit, you can quickly fix broken equipment, order more inventory to meet unprecedented demand, or cover payroll for your extra staff members. Most business lenders will only recommend using a business line of credit for business expenses if your expenses are minimal, the same amount every month, and you’ll be reimbursed for the money you’ve borrowed relatively soon.
No two restaurants are the same
We frequently recommend different business funding programs for different restaurant clients in order to suit their every need. No two restaurants have the same financial pressures, whether it’s due to changing demand, key suppliers, or rising rent costs. The best way to ensure you receive the right program for you is to simply let us know about these pressures and, more importantly, how you plan on dealing with them for the rest of your career.