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The restaurant and bar industry is known for its resilience, but recent economic headwinds have tested even the most seasoned establishments. Over the past year, a combination of soaring inflation, supply chain disruptions, and labor shortages has created a challenging environment, squeezing profit margins and forcing owners to make difficult decisions. In this climate, access to quick and flexible financing can be the difference between weathering the storm and closing down. Merchant cash advances (MCAs) have emerged as a valuable tool for restaurant and bar owners seeking immediate liquidity to navigate these turbulent times. This report delves into the specific economic challenges faced by these businesses and how MCAs can provide a much-needed lifeline.

Economic Challenges Facing Restaurants and Bars

The past 12 months have presented a unique set of economic pressures that have significantly impacted the profitability of restaurants and bars. These challenges include:

Rising Food Costs

Inflation has driven up the cost of ingredients, forcing restaurants and bars to either absorb these costs or pass them on to customers through higher menu prices. The Consumer Price Index for Food Away From Home increased by 0.3% in September 2024 and is up 3.9% from June 2023. Food and drink inflation was the highest of all categories at 12.2% in September 2023. To combat these rising costs, 26% of restaurant operators have reduced their menu offerings³.

One restaurant owner shared his experience, stating, “I remember walking into Sam’s and seeing brisket eclipsing $3 a pound. I was just flabbergasted at the time.” This anecdote highlights the shock and frustration felt by many in the industry as they grapple with escalating ingredient prices.

Labor Shortages

The restaurant industry has been grappling with a severe labor shortage, making it difficult to find and retain qualified staff⁴. This shortage has led to increased labor costs as businesses compete for a limited pool of workers⁶. As of December 2024, the Bureau of Labor Statistics reported approximately 10,092,000 open jobs in the leisure and hospitality industry, but the industry only hired 942,000 new employees⁷. Full-service restaurants are still experiencing staffing levels 4% lower than pre-pandemic levels⁵.

Adding to the complexity of labor costs, minimum wage increases have impacted restaurant owners’ tax burdens. As one owner explained, “Since I opened my restaurant 4 years ago, minimum wage has gone up from $11 to $15. Now this also means, not only did wages go up about 40% across the board, but the tax brackets did not change. So now your line cook that has gone from $15/hour to $22/hour goes up a tax bracket, which increases the tax I pay out beyond their source deductions. It’s going to kill small businesses.” ⁸

Furthermore, the median hourly wage for waiters and waitresses is significantly lower than the median hourly wage across all professions, making it difficult for restaurants to attract talent⁷. This wage gap, combined with the potential for a “Great Resignation 2.0,” ⁹ paints a concerning picture for the industry’s ability to attract and retain staff.

Supply Chain Disruptions

The global supply chain has experienced significant disruptions, leading to delays, shortages, and increased costs for essential goods¹⁰. These disruptions have made it challenging for restaurants and bars to obtain necessary ingredients and supplies, further impacting their bottom line¹¹.

These disruptions have not only impacted costs but have also forced operational changes. Many restaurants have reduced the number of items on their menus and focused on simpler preparations to mitigate supply chain uncertainty and staffing shortages¹².

Increased Operating Costs and Other Threats

In addition to rising food and labor costs, restaurants and bars have also faced increased expenses for rent, utilities, and other operational necessities¹³. These rising costs have further squeezed profit margins, making it more difficult for businesses to stay afloat².

Beyond these immediate challenges, the industry faces a multitude of other threats, including health and safety regulations, economic recession, rent increases, and shifts in consumer preferences¹⁴. Bar owners, in particular, face significant insurance costs related to fire, property damage, liquor liability, and more⁴.

These challenges have forced many restaurant and bar owners to make difficult choices, such as reducing operating hours, simplifying menus, and even laying off staff⁵. In this environment, access to flexible financing can be crucial for survival.

Merchant Cash Advances: A Solution for Immediate Liquidity

MCAs offer a unique financing solution that is particularly well-suited to the needs of restaurants and bars. Unlike traditional bank loans, which often involve lengthy application processes and stringent requirements, MCAs provide quick access to capital with more flexible terms¹⁶.

MCAs are a variety of small business financing options characterized by purchasing future sales revenue in exchange for short payment terms¹⁸. Here’s a breakdown of how they work:

• Advance Against Future Sales: An MCA is not a loan but rather an advance against a business’s future credit and debit card sales¹⁹. The MCA provider gives the business a lump sum of cash upfront in exchange for a portion of future sales²⁰.
• Flexible Repayment: The repayment structure of an MCA is typically tied to the business’s revenue, meaning that payments fluctuate with sales volume²¹. This flexibility can be particularly beneficial for restaurants and bars, which often experience seasonal fluctuations in revenue¹⁶. There are two main options for repayment terms: a percentage of credit card sales or a fixed payment²².
• Fast Approval and Funding: MCAs are typically approved and funded much faster than traditional bank loans²³. This speed can be crucial for businesses facing immediate cash flow needs or unexpected expenses²².
• Minimal Paperwork: The application process for an MCA is generally straightforward, requiring less documentation than traditional loans¹⁶. This streamlined process can be a significant advantage for busy restaurant and bar owners²⁴.

MCAs can be a particularly good option for businesses that are struggling to get traditional forms of small business financing²³.

Benefits of MCAs for Restaurants and Bars

MCAs offer several key benefits that make them an attractive financing option for restaurants and bars:

• Addressing Immediate Needs: MCAs provide immediate liquidity, allowing businesses to address urgent needs such as covering payroll, paying suppliers, or repairing equipment²⁵. This quick access to capital can be crucial for maintaining operations and preventing disruptions²⁶.
• Managing Cash Flow: The flexible repayment structure of MCAs helps businesses manage cash flow during periods of fluctuating sales¹⁶. This adaptability can be particularly valuable for seasonal businesses or those experiencing economic uncertainty²⁴.
• Funding Growth Opportunities: MCAs can be used to fund growth opportunities, such as expanding operations, renovating facilities, or launching marketing campaigns²⁵. This access to capital can help businesses capitalize on opportunities and increase revenue²⁶.
• Improving Operational Efficiency: MCAs can be used to invest in technology and equipment that can improve operational efficiency, such as point-of-sale (POS) systems, inventory management software, and online ordering platforms¹. These investments can help businesses streamline operations, reduce costs, and enhance customer service¹⁵.
• No Growing Debt: MCAs are not classified as loans, so businesses do not take on additional debt that needs to be repaid over time²⁷.
• Credit Score Protection: MCAs do not typically require a hard credit check, so a business’s credit score is not negatively impacted by the financing application process²⁷.

MCAs can be a popular solution for new and growing businesses looking for quick access to funding²⁰.

Case Studies and Testimonials

Real-world examples demonstrate the positive impact of MCAs on restaurants and bars:

• Blacks Cheese: In October 2016, Blacks Cheese in Shropshire used an MCA to stock up on inventory before the Christmas rush²⁸. The MCA provided the necessary capital to prepare for the seasonal increase in sales, ensuring that the business could meet customer demand.
• Jeannie’s One-Stop Diner: Jeannie’s One-Stop Diner in Panama City Beach, Florida, has used MCAs multiple times to improve the diner, including décor and equipment upgrades²⁹. The owner, Jeannie Deloriea, praised the ease and speed of the process, highlighting the positive impact on her business²⁹.
• Chicago Restaurant: One restaurant owner in Chicago shared their experience, stating, “We have turned to their funding team as our source of keeping our cash flow strong. We consider our ‘new’ bank since traditional banks are just not making it happen these days. We are actually expanding in these economic times and have to update our restaurant to keep our patrons happy. It is competitive out there, and we want to keep up a strong presence given we are in the heart of restaurant row ‘the miracle mile’ in Chicago.” ³⁰
• Veterinary Business: The owner of a veterinary business shared their experience, stating, “While taking small increments of money, I was able to buy the needed supplies for my Veterinary Business to continue growing and expanding at a scheduled pace. As well, by doing this, I am now going to take a bigger chunk of money to ensure getting to yet another tier with some more foundation behind me. is not your typical cash advance company but not my own private bank.” ³⁰

These examples illustrate how MCAs can provide a lifeline for businesses, enabling them to overcome challenges, manage cash flow, and pursue growth opportunities.

The choice of financing option depends on the specific needs and circumstances of each business. It’s crucial to carefully evaluate the costs, terms, and eligibility requirements of each option before making a decision.

The restaurant and bar industry is facing unprecedented economic challenges, with rising costs, labor shortages, and supply chain disruptions impacting profitability. In this environment, MCAs offer a valuable financing solution that can provide immediate liquidity, manage cash flow, and fund growth opportunities. 

To learn more about how MCAs can help your restaurant or bar thrive, contact us today 646–397-2865.