Finance for restaurants, pubs and cafés

Restaurants, pubs and cafés take most of their money on cards, every day, in amounts that swing with the season, the weather and the football fixtures. That shape suits finance that is repaid as a share of takings rather than a fixed monthly sum. It also makes it easy to sign something expensive in a good month that bites in a quiet one.

The cash-flow shape of a food and drink business

Money comes in daily and goes out in lumps. Suppliers want paying weekly or fortnightly, wages run weekly or monthly, and the big bills land together: rent quarter days, the VAT return, a broken combi oven, a refit before the summer terrace opens.

VAT is the one that catches owners out. The return and the payment are both due one calendar month and 7 days after the end of each VAT period. If your quarter ends after a busy December, January's payment is calculated on December's takings but paid out of January's.

Tips are no longer your money. Since 1 October 2024 the Employment (Allocation of Tips) Act 2023 has been fully in force, and tips and service charges must go to workers. That matters for finance: card tips pass through your terminal, so a funder looking at your merchant statements may count them as takings. Ask them to strip tips out, both when sizing an advance and when collecting it.

Which finance fits, and which doesn't

A merchant cash advance collects a holdback (a fixed percentage of each day's card takings) until the agreed total is repaid. On a slow Tuesday you pay less, on a full Saturday more. Some products are sold as cash advances but collect a fixed daily debit instead. That is a different animal: it doesn't flex, so check which one you are being offered.

What it costs: a worked example

Say the company takes £50,000 at a factor rate of 1.35 (the fixed multiple you repay) over about 6 months, collected daily.

• You repay £67,500 in total.
• That is roughly 126 daily payments of £535.71.
• The cost is £17,500.
• As an APR, that is about 126%.

Sterling's rule of thumb puts anything over 100% APR in "very expensive" territory. That doesn't make it wrong. If £50,000 lets you open a terrace that earns well over £17,500 across the summer, the maths can work. If it is covering a loss that will still be there in March, it won't. The calculator on this page does the conversion for any offer.

What funders typically ask a restaurant for

• Bank statements, usually the last several months, showing deposits and existing debits.
• Card merchant statements, because a cash advance is sized on card takings.
• Filed accounts at Companies House and, for larger amounts, management accounts.
• VAT returns, which show turnover the funder can cross-check against the bank.
• Lease details, since a short lease on the premises makes long finance harder.

A director's personal guarantee may be required, and a funder may run a credit search, which could be a soft search.

Red flags specific to hospitality

1. Daily debits sized on your August. If the repayment is a fixed amount set from your best month, run it against your worst. February should still clear it.
2. Tips in the takings figure. An advance sized on takings that include tips is sized on money that isn't yours, and so is the collection.
3. A second advance to cover the first. Taking another advance to keep up with the payments on the first is stacking, and it usually ends with most of the day's card takings going to funders.

Limited companies only

Ask Sterling can only introduce limited companies. Plenty of cafés and pubs trade as sole traders or partnerships, and that's a perfectly good way to run a business. Introducing them to finance is regulated credit broking, though, and we don't hold that permission. If your restaurant is a limited company, you are in the right place. Business finance for limited companies is not regulated by the Financial Conduct Authority, and merchant cash advances are not loans and are not FCA-regulated, so read every agreement as carefully as you would a supplier contract.