Dear Restaurants – You’re Lucky We Like You So Much

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restaurant loanAsk anyone in the Merchant Cash Advance (MCA) industry to explain how this financial product works and there is a 99% chance they will use a restaurant in their example. “Let’s say a restaurant is processing $10,000 a month in credit card sales…” and so the pitch goes. For years, restaurants have been the face of the industry. More than 30% of all MCA recipients are in food service, a trend that is more indicative of how needy restaurants are for capital as opposed to how they great they perform for the funders.

But on Main Streets all throughout America, many restaurants come and go in the blink of an eye. Many don’t survive their first year and some never even make it to opening day due to board of health issues, liquor licensing, and zoning laws. A friend of ours is a loan underwriter for one of America’s largest banks and although they will never, ever admit it, restaurants are on their ABSOLUTELY DO NOT APPROVE list. Do such lists exist? We are told they do. We are also told that a restaurant chain with 100 locations is just as terrifying to lend to as a solitary Mom and Pop café. Financing restaurants is so risky that the New York Times cites a Venture Capitalist in a recent article as saying “Anyone who says they like to invest in restaurants is probably not a great investor.

So is the MCA industry on the path to extinction by placing so much stock in them or does the system of buying future sales at a steep discount offset all of the risk? Either way, the food service industry is lucky to have such a big cheerleader.

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Last modified: April 20, 2019
Sean Murray

Category: merchant cash advance, MPR Authored

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