Our most recent data tells us that there has been a 100% increase in the use of merchant cash advances by independent restaurants so far in 2019. This is purely due to restaurants and pubs striving to keep ahead of the competition and grow their businesses while many chain restaurants suffer losses and closures.
Restaurants and pubs across the UK are using cash advances to finance expansion, refurbishment, redevelopment and to invest in equipment, staff and training, as well as putting the money towards helping with working capital and VAT payments. Such independent businesses are bucking the trend in the casual dining sector, which sadly saw 120 closures in our capital city alone last year.
Gone are the days of 2015 and 2016 when there were three new restaurant openings for every closure. Many new concepts have failed, whereas the tried-and-tested businesses have fared much better.
The need for suitable business funding has partly increased due to rising costs for proprietors and a requirement to take the competitive edge. The closures of homogeneous chains, such as Prezzo, Carluccio’s and Jamie’s Italian, have given the independents an opportunity over the last year to get a stronger foothold in the casual dining sector.
With 1.7 million UK consumers visiting a restaurant at least once a week, the chance for independent restaurants and pubs to really take a slice of the action is clear, and an increasing number of them are targeting growth to capitalise on the trend of consumers to favour local, independent locations instead of large chains or out-of-town restaurants.
Independent restaurants are telling us that their customers value the personal approach, knowing that their food is locally sourced and that the restaurant is part of the community, not a corporate machine. They are also more flexible, in that they aren’t tied to the suppliers, processes or the legacy issues of chain restaurants.
One of the unforeseen upsides of the sudden departure of the chains is the availability of fitted-out units, many of which are being snapped up by independents. Landlords recognise the value that these local restaurants and bars bring to an area. In a recent example, we provided finance for a single-site restaurant in East London to expand by securing a second, much larger, site in Soho – enabling it to significantly increase its footprint in the capital, bolster its own brand and drive profitability.
When it comes to getting the funding to develop and expand their businesses, many independent restaurants and pubs are turned down by high street banks or are required to secure loans against their business or property, supply business plans and commit to lengthy terms. A merchant cash advance is designed to match businesses’ cash flows, with repayments taken as a small percentage of debit and credit card sales, so they only pay back the funding when their customer pays them. The cost is fixed up-front regardless of how long it takes to pay, with no late fees or hidden costs.
We’ve spoken with many restaurant, pub and bar owners who now favour this type of finance for their business. There are so many instances of cash coming out of a business – whether it’s VAT, PAYE, unexpected repair bills, or the need for new stock or expansion – so keeping on top of cash flow is imperative to maintaining the financial health of your restaurant.
It’s important to us that independent operators receive the support they need, not just through funding but also in a wider sense. Businesses are squeezed ever tighter and our aim is to champion these smaller businesses that are the lifeblood of the high street in the UK. The future is looking bright for the independents – while the bigger chains are falling by the wayside, now is the time for independent operators to fulfil the growth potential of their businesses.