A lump sum bought from future covers
A merchant cash advance is a purchase of future card receivables that gives a restaurant a lump sum now in exchange for an agreed share of its card takings until a fixed amount has been delivered. It is not a loan. There is no interest rate, no fixed monthly instalment and no term.
A funder advances a sum sized near one month of card turnover, typically somewhere between £5,000 and £500,000. A factor rate of typically 1.1 to 1.5 sets the total repayable. A holdback of typically 5 to 20 percent comes out of each day's card settlement, either split at the acquirer before the money reaches your account or collected daily by direct debit. Busy Saturday, more repaid. Dead Tuesday in February, less repaid. Our guide to what a merchant cash advance is covers the product in full.
How a funder reads restaurant card takings
Underwriting starts with three to six months of merchant statements. The funder wants four things from them: average monthly card takings, how many settlement days there are in a month, how stable the pattern is week to week, and whether the trend is flat, climbing or sliding.
Volume of transactions matters as much as their value. A restaurant turning over the same amount across two hundred covers a week reads more comfortably than one doing it across forty large private bookings, because daily collection works best where money arrives every day rather than in occasional lumps.
Cash is the blind spot. Card payments are the only part of your turnover a funder can see and collect against, so a restaurant with a heavy cash trade will be offered less than its books justify. That is a sizing limit, not a judgement, but if card sales are a small fraction of takings the advance may be too small to be worth doing.
Setting a holdback a kitchen margin can carry
The holdback percentage is where restaurant deals are won or lost. Food margins are thinner than drink margins, and both are thinner than they look once wages, rent and energy come out. Set the holdback too high and it strips working capital out of the business at the point it needs to buy next week's stock.
Sites with a decent wet mix can usually carry a holdback nearer the top of the range, because gross margin on drink cushions the deduction. A purely food-led operation with a long menu and a large brigade is better served by a lower percentage over a longer delivery period. The cost is identical either way, because the factor rate fixes the total repayable however long collection takes. Repaying faster does not make an advance cheaper: to pay less, negotiate the factor rate.
What restaurant business funding usually pays for
The uses that suit an advance share one feature: they turn cash into more covers reasonably quickly. Replacing a combi oven or walk-in that has failed. Refurbishing the front of house between quiet weeks. Building out a terrace before the season. Bridging a VAT or rent quarter after a slow month.
Restaurant business funding of this kind is priced for speed rather than cheapness, which is why operators reach for it when a piece of kit dies mid-service. Where the need is slower and larger, such as buying a freehold, a secured facility is the sensible route and we will say so.
Seasonality, service charge and the wet to dry mix
Few trades swing as hard as restaurants. December can carry a quarter of the year, January and February are brutal, and a coastal site may take most of its money in twenty weeks. Fixed monthly repayments sit badly against that shape, which is the structural argument for a proportional holdback: the deduction shrinks when the room is empty.
Two sector details come up in underwriting. Service charge and tronc flow through your merchant account and inflate the settlement figures a funder is reading, so make sure they know what share of card volume is money that never belonged to the business. And a restaurant with a bar trading independently of the dining room has a steadier daily pattern and a better blended margin, which is the same logic that drives funding for the licensed trade.
When an advance is the wrong call for a restaurant
There are restaurants we tell to walk away. If the site loses money at current covers, an advance does not fix that, it postpones it and adds a holdback on top. Funding a structural loss is the most common way operators get into trouble with this product.
If your takings are mostly cash, the advance will be too small to matter. If you are pre-opening with no card history there is nothing to underwrite. If you need money to buy the property, the delivery period is wrong for the asset. And if you already carry an advance, stacking a second one compounds two holdbacks against the same daily takings and can take a workable site under. An advance suits a profitable restaurant with a timing problem, not a restaurant with a trading problem.
Not a loan, and what that means legally
Because an advance buys future card receivables rather than lending money, an agreement with a limited company sits outside the consumer credit perimeter and is unregulated commercial contracting. No APR is quoted, and the wording of the contract carries more weight than it would in a regulated product, so read the delivery terms, the definition of card takings and the events that let a funder change the holdback.
Sole traders are a different case, because some sole trader and small partnership agreements can fall within the Consumer Credit Act and its protections. If you trade as an individual rather than through a company, ask which regime your agreement sits under before signing. Our eligibility page sets out the position.
How we place restaurant deals
We arrange, we do not lend. Funders read restaurant statements differently: some price seasonality kindly, some work with a lower card mix, and acquirer programmes attached to your terminal are quick but priced with little room to negotiate. We take your merchant data to the funders whose appetite matches your trade and compare offers on total repayable and holdback together rather than on the headline sum advanced. Operators in London tend to see the widest spread, simply because more funders are active there.