Bars, like other businesses are heavily reliant on cash flow for day-to-day operations. ‘Cash Flow’ is an economic concept which describes the money flowing into a business from clients and customers, and the money flowing out of the business to pay for expenses. A positive cash flow results when a business generates more incoming streams of money, and a negative cash flow results when the outflow exceeds the inflow.
In the latter case, a business will be required to generate substantially more revenue in order to meet overdraft requirements and creditors. The SBA (Small Business Administration) cites insufficient cash flow as one of the main reasons why start-ups fail. Nothing shuts down a bar business faster than negative cash flow. Since most start-ups have higher costs to contend with, and little income is being generated in the infancy stages, cash flow becomes a major concern. Setting up a bar and nursing it through the infancy stages is expensive. That’s why access to appropriate financing is critical.
Different Types of Short-Term Loans Available to Bar Owners
The good thing about bars is that people tend to eat and drink year-round. Seasonal fluctuations are a factor, particularly when the football season is in play. Cash flow greases the wheels so that businesses can remain active and pay for expenses from day-to-day. At times though, it may be necessary for a business to get assistance with cash flow shortages. This can be done in several ways, notably a working capital line of credit. These are different to business loans in that the working capital line of credit offers a business a fixed credit amount that can be used during cash flow shortages, and paid back when the business generates excess cash. Interest is only payable on the amount of cash that is withdrawn, not on the total line of credit. Business loans span the full spectrum, including business credit cards, business lines of credit, line of credit loans, asset-based loans, term loans, equipment financing, instalment loans, merchant cash advances, personal loans, and peer-to-peer lending, among others. Of course, choosing the right business loan is dependent upon many factors. Foremost among them is a business’s ability to repay the loan.
Short term capital loans are increasingly popular, since they solve an urgent problem for bar owners – notably the need for short-term capital financing. These short-term working capital loans provide instant access to funding, from a wide variety of lenders who now populate this arena. Loans are typically issued to businesses within hours, and the money is available for use the next day. Short-term capital loans are offered by many ranking lenders such as Get Capital Capify, and Prospa, but the precise fit depends on what a business is looking for.
Funding amounts can range from £5,000 through £400,000, and there are certain eligibility requirements that must be met for loans to be approved. PayPal also offers short-term working capital loans to business owners, provided the SME has generated consistent sales over time. This service is similar to Amazon Lending, but PayPal services are extremely limited, and capped at 35% of the PayPal receipts over the past 1 year. The annualised interest rate is also high at 15% – 30%, making this an unattractive option for many businesses.
Factors to Consider when Applying for a Short-Term Working Capital Loan
Other short-term working capital loans providers offer higher loan amounts (based on annual receipts) with flexible repayment schedules. Many small business lenders do not consider loan amounts received on PayPal or other payment gateways. By providing business owners with higher loan amounts, businesses can stay operational for longer, and get their affairs in order to repay the loans.
Since many short-term capital loans providers are local, they understand the exigencies of the market (difficulty getting approved for bank loans and accessing capital) and are willing to work with local clients on a personal basis. Any short-term lending option can be used for a wide variety of options. Traditional banks also offer short-term loans to businesses, but they come with stringent qualification criteria. The pros and cons of short-term capital loans must be carefully assessed before applying for these loans. If a business is struggling with cash flow, with no plan to turn things around, a short-term capital loan may not be the best option.
Unexpected emergencies can easily occur in a bar business, making it imperative to have access to business loans. Unforeseen circumstances such as equipment failure, relocation costs, inventory needs, and a myriad of other factors can weigh heavily on finances. For these reasons, it’s especially important to have the option to tap into lines of credit to ease the financial burden. Line of credit loans should be used for unexpected emergencies, while business lines of credit from online vendors and banks have much larger limits than standard business credit card options. Interest rates on short-term loans vary from one provider to the next. It’s safe to say that short-term loans with less stringent criteria are costlier than bank loans requiring substantial paperwork and lengthy approval processes.
A caveat is in order though: Provided the bar has clearly-formulated, long-term financial plans, it is always better to consider all available options before settling on one type of loan. Businesses can prepare for a loan by crafting an application with plenty of supporting documentation. This includes the length of time the bar has been in operation, the annual revenue, and other credentials such as personal credit. Bank statements, tax return forms, income statements and/or balance sheets are useful, although not required by many short-term lenders nowadays. Online loan applications are increasingly popular, and associated with less paperwork and requirement criteria than bricks and mortar banks.