For restaurants: Merchant Cash Advance or Term Loan — Which is better for seasonal cash flow?

TL;DR — Quick answer

Short version: if you need fast, flexible bridge funding that adjusts with card takings, a Merchant Cash Advance (MCA) can be the better short-term fix for seasonal dips — but it’s usually more expensive. If your seasonal shortfall is predictable, you can qualify for it, and you want the lowest overall cost and predictable payments, a short-term term loan (or seasonal term loan/overdraft) is usually the smarter choice.

Key trade-offs:

• Speed & flexibility: MCA wins.
• Overall cost and predictability: term loan usually wins.
• Impact in slow weeks: MCA repayments fall with takings but can still be costly; term loan payments stay fixed and must be met even in quiet weeks.

Get Quote Now — Free Eligibility Check (no obligation; completing an enquiry helps match you to lenders/brokers).

How restaurants experience seasonal cash flow

Restaurants often face predictable patterns: busy weekends, quieter midweeks, big spikes at holidays or during tourist seasons, and sudden drops from weather or local events. Staffing, stock orders, rent and VAT are regular commitments — they don’t stop during quiet weeks. That timing mismatch is the common reason restaurants seek short-term finance.

Why timing matters: a finance product that matches the rhythm of your takings reduces stress. If repayments are fixed and large, a quiet month can force cuts to inventory, marketing or staff. If repayments scale with takings, you keep more cash when it matters most — but you may pay more overall.

What is a Merchant Cash Advance (MCA)? How it works for restaurants

An MCA is not a loan in the traditional sense. A provider gives an advance against future card sales and recoups via a fixed percentage of daily or weekly card takings (or a fixed direct debit). The price is set with a factor rate (e.g., 1.2–1.5), not an APR — which makes comparison tricky.

How MCAs work in practice:

• You receive a lump sum quickly (often 24–72 hours after approval).
• Repayment is a percentage of card transactions (for restaurants this can be attractive because it scales).
• There’s no fixed term; total repayment depends on sales volume and the agreed factor.

Pros for restaurants:

• Very fast access to cash.
• Payments fall automatically in quiet periods because they’re a share of takings.
• Often available to businesses with shorter trading histories or weaker credit.

Cons:

• Usually much higher effective cost than term loans.
• Variable repayments can complicate forecasting.
• Some MCAs use daily collections that can strain register cash if you take a lot of cash transactions.

What is a Term Loan? How it works for restaurants

A term loan is a set principal repaid over a fixed period with interest. Lenders quote interest rates (fixed or variable) and monthly repayments. Loans can be unsecured or secured and typically require evidence of trading history and financials.

How term loans work for restaurants:

• Apply, provide accounts/bank statements, agree terms; funding typically takes days to weeks.
• Repayments are usually fixed monthly amounts, which aids budgeting.
• Borrowing from £10,000 upwards is common for business term loans in this market.

Pros:

• Lower overall cost (lower interest than typical MCA effective rates).
• Predictable payments that help planning.
• Better for investments that increase revenue (fit-outs, equipment).

Cons:

• Repayments do not flex with takings — can be a burden in quiet months.
• Longer approval and stricter eligibility requirements.

Direct comparison — MCA vs Term Loan for seasonal cash flow

Let’s walk through the main decision points so you can choose quickly.

Repayment flexibility

MCA: Repayments track card sales, so pressure eases during slow spells. Term loan: Fixed payments that must be met regardless of takings. If your cashflow swings wildly and you can’t tolerate a fixed monthly payment, MCA wins on flexibility.

Cost (effective APR)

MCA: Factor rates typically translate into very high effective APRs — sometimes equivalent to 40%–100% APR depending on term and drawdowns. Term loan: Much lower interest rates — often the most cost-effective over 12–36 months.

Speed & ease of access

MCA: Quick, often same-week funding. Term loan: Slower underwriting; expect several days to weeks.

Qualification

MCA: Easier for businesses with short trading history or weaker credit because repayment ties to card flows. Term loan: Requires clearer financials and may demand personal guarantees or security.

Impact in slow weeks

MCA: Payments drop with takings, preserving some working capital — but you still pay a premium for that protection. Term loan: You must meet fixed payments; this can force cutbacks or use of emergency lines.

Typical use-case recommendations

• Emergency short-term top-up between busy periods (e.g., cover a slow January) → MCA if you need funds fast and have solid card volumes.
• Planned seasonal ramp (hire extra staff ahead of summer) → Short-term term loan or seasonal overdraft if you can schedule repayments around expected income.
• Refurbishment or equipment that increases future takings → Term loan or equipment/fit-out finance (cheaper overall).
• Bridge gaps while you refinance → MCA short-term bridge, then refinance to a term loan when possible.

Practical examples and numbers

Here’s what that looks like in simple terms.

Example A — MCA bridge

• Advance: £30,000. Factor rate: 1.35 → total repayable £40,500.
• Repayment method: 10% of daily card takings.
• If weekly card takings average £6,000 in busy season, weekly repayment ≈ £600. If a slow week is £2,000, weekly repayment ≈ £200.
• Benefit: cash pressure eases in slow weeks; cost high (you pay £10,500 for the convenience).

Example B — 12-month term loan

• Loan: £30,000. Interest: 12% annual. Monthly repayment ≈ £2,665 (principal + interest) over 12 months.
• Monthly payment is fixed regardless of takings — so a slow month still needs £2,665 from operating cash.
• Benefit: total interest over term is lower than MCA in most cases; predictable budgeting.

What this means: An MCA can reduce weekly cash pressure but costs far more. A term loan costs less overall but needs reliable cash to cover fixed repayments.

Risks, hidden costs and checks

Before you accept any offer, check:

• Total cost: ask for a clear comparison (factor rate vs APR equivalent; fees; default charges).
• Repayment method: daily collections can create register shortfalls.
• Security and guarantees: personal guarantees or charges against premises are common on cheaper loans.
• Prepayment/refinance terms: some MCAs or lenders charge exit fees or penalties.

Important: ask lenders for a full schedule of repayments under different revenue scenarios. That helps you forecast slow weeks.

When to choose which — quick decision checklist

• Need funds within 48–72 hours and have strong card sales history → Consider an MCA (but compare total cost).
• Predictable seasonal shortfall, solid accounts and ability to meet monthly repayments → Short-term term loan or overdraft.
• One-off investment to increase capacity (new kitchen, fit-out) → Term loan or equipment/fit-out finance.
• Poor trading history/credit but stable card volumes → Specialist MCA or broker-sourced options.
• Need a short bridge only → MCA then refinance to term loan when cashflow improves.

How UK Business Loans helps

UK Business Loans connects restaurant owners with lenders and brokers who specialise in hospitality finance. Tell us what you need via a short enquiry and we’ll match you to partners who can offer competitive options from £10,000 upwards. It’s free to use and no obligation — we make introductions so lenders/brokers can quote directly.

Start Your Free Eligibility Check

Learn more about specialist options for hospitality by visiting our restaurants hub on restaurants business loans.

Frequently asked questions

Will a merchant cash advance affect my credit score?

Submitting an enquiry via UK Business Loans does not affect your credit score. Lenders may carry out checks if you proceed; always ask what checks are used.

How quickly can I get funds?

MCA providers can fund in 24–72 hours; term loans typically take longer depending on underwriting, security and paperwork.

Can I refinance an MCA with a term loan later?

Yes — many businesses use an MCA as a bridge and refinance to a cheaper term loan once cashflow normalises. Ask lenders about refinancing options early.

What information will lenders ask for?

Commonly: recent bank statements, card terminal statements, VAT returns, business plan for one-off investments, and proof of ID. For term loans, accounts or management figures are usually required.

Final call to action

If seasonal cashflow is squeezing your restaurant, make the choice that fits your rhythm: fast, flexible MCAs for short, urgent gaps; term loans for planned, lower-cost funding. Want a tailored recommendation? Complete our short enquiry and get matched quickly to lenders and brokers who specialise in hospitality finance.

Get Quote Now — Free Eligibility Check

We introduce you to lenders and brokers — we do not lend. Completing an enquiry does not affect your credit score. Offers and terms vary by lender and are subject to eligibility and checks.

1) Which is better for seasonal cash flow — a Merchant Cash Advance (MCA) or a term loan?
An MCA is better for fast, flexible repayments that scale with card takings during slow weeks, while a short-term term loan is usually cheaper overall and better for predictable seasonal shortfalls.

2) How quickly can I get restaurant funding through an MCA or a term loan?
MCAs can fund within 24–72 hours once approved, whereas term loans typically take several days to a few weeks depending on underwriting and security requirements.

3) How much does a Merchant Cash Advance cost compared with a term loan?
MCAs use a factor rate that often translates into much higher effective APRs (commonly the equivalent of 40%–100% APR), while term loans usually carry significantly lower interest rates over 12–36 months.

4) Will submitting an enquiry with UK Business Loans affect my business credit score?
No — submitting an enquiry with UK Business Loans does not affect your credit score, although individual lenders may perform checks if you progress to a formal application.

5) Can I refinance an MCA with a term loan later on?
Yes — many restaurants use an MCA as a short bridge and refinance to a cheaper term loan when cashflow stabilises, so always discuss refinancing options with lenders or brokers.

6) What information and documents will lenders commonly ask for?
Lenders typically request recent bank statements, card terminal statements, VAT returns, proof of ID, and for term loans, accounts or management figures and sometimes a business plan.

7) What loan amounts and types of finance can UK Business Loans connect my restaurant with?
UK Business Loans can match you to lenders and brokers offering a wide range of finance from around £10,000 up to multi‑million deals, including MCAs, term loans, overdrafts, asset and fit‑out finance.

8) Are the brokers and lenders UK Business Loans connects me with regulated and trustworthy?
Yes — UK Business Loans works only with trusted, FCA‑regulated brokers and lenders who specialise in business finance and hospitality sectors.

9) Who is likely to qualify for an MCA versus a term loan?
Businesses with strong card takings but shorter trading histories or weaker credit are often eligible for MCAs, while term loans favour businesses with predictable accounts, stronger credit and sometimes security or guarantees.

10) What hidden costs or risks should restaurants check before taking finance?
Check total cost (factor rate vs APR equivalent), daily collection methods, default charges, prepayment penalties, and any personal guarantees or charges against premises before accepting an offer.