Nightclub Loans: Working Capital & Cash Flow Solutions to Fuel America's Hottest Nightclubs

Nightclubs are a pervasive part of our culture, and no matter where you go around the world, each country has adopted the nightclub as the benchmark of their nightlife. The lure of owning a bar, nightclub or lounge is strong: no boring 9-to-5 schedule, no dress code (at least not for you), no cubicles. You can play music as loud as you want, enjoy reserved seating every night and take advantage of an open bar. Sounds like a dream job. That is, if you don’t consider the high turnover in employees, drunk and belligerent patrons, and bartenders who give out free drinks and dilute what little profit you make. We understand the challenges nightclub owners face, that's why we provide funding solutions to enable stability and growth.

A revenue based loan could be your nightclubs lifeblood and provide it with several financial benefits. When your nightclub is growing, chances are you'll need an injection of cash to continue its growth. Bank loans are often times too restrictive and near impossible to obtain these days. In this situation, a revenue based loan may be the best solution. If you use it wisely, a revenue based loan could do wonders for your nightclub. Without being capitalized, chances are you will wind up in a growth stalemate. Here are three ways that revenue based loan can save your nightclub:

Helps Grow Your Nightclub

If your nightclub is under 2 years old and starting to scale, you obviously want to ride the wave. You cannot do this without a dependable source of capital. Bank criteria is typically a minimum of 2 years in business, strong cash flow, positive ratios and perfect credit. However, a revenue based lender will fund newer nightclubs, with less stringent credit requirements and use of capital restrictions. This type of loan will give you a shortcut to cash since it only requires a few months of business bank statements; whereas banks require 2 to 3 year business and personal tax returns, income statement, balance sheet, personal financial statement, debt schedule and countless other documents to complete loan package. Many times, your bank statements are enough to demonstrate to a revenue based lender that you can repay your loan.

 Get Cash Quickly

You're busy running a nightclub, you don't have to time to compile overly detailed loan packages and chasing after loan sources. All you know is that you need cash quickly and even if you could get approved for a bank loan, is it really worth all the trouble? A revenue based loan will provide cash quickly with a very short turnaround time. If you are prepared to apply for a revenue based loan and have the appropriate supporting documents ready to go, you may be able to get funding in as little as 24 hours. Compare that to a bank loan where the loan process is on average 2 to 4 months. This is one of the main advantages of a revenue based loan. Some nightclub actually consider this a lifesaver, and will go this route over a bank loan any day.

 No Lingering Debt

A revenue based loan will not weigh you down with long-term debt. When you obtain a revenue based loan, you will not be looking at 5 to 10 years to repay a loan for money that you're using today. Think about it, why would you want the headache of paying off a 2017 marketing campaign all the way into 2025? Not to mention, having this type of long-term loan could hurt your chances for getting funding in the near future, which all nightclubs will need if they plan to scale. With a revenue based loan, you will pay it off in roughly 6-12 months, which makes more sense for short-term expenses. Additionally, lenders are usually willing to replenish the loan after roughly 50% is paid down, so you can continue getting more capital along the way. One more point to mention, going the bank route you'll also have to be aware of up-front fees, equity injections, referral fees, packaging fees, guarantee fees, and closing costs.

A Merchant Cash Advance (MCA) is not a loan, but rather a cash advance based upon the credit card sales of a nightclub. A nightclub can apply for an MCA and have funds deposited into their account fairly quickly, often times in less than 24 hours.

Merchant Cash Advance providers evaluate risk and weigh credit criteria differently than a banker or lending institution. An MCA provider looks at the daily credit card receipts to determine if the nightclub can pay back the funds in a timely manner. Basically, a nightclub owner “sells” a portion of future credit card sales to acquire capital immediately.

Rates on a Merchant Cash Advance can be much higher than other financing options, so it’s critical you understand the terms you’re being offered so you can make an informed decision about ROI.

How does a Nightclub Business Cash Advance Work?

An agreement is made between the nightclub owner and the MCA provider regarding the advance amount, payback amount, hold-back and term of the advance. Once an agreement is made, the advance is transferred to the nightclub’ bank account in exchange for a future percentage of credit card receipts.

Each day, an agreed upon percentage of the daily credit card receipts are withheld to pay back the MCA. This is called a “hold-back” and will continue until the advance is paid in full. Access to a nightclub owner’s merchant account eliminates the collateral requirement required for a traditional small business loan.

Because repayment is based upon a percentage of the daily balance in the merchant account, the more credit card transactions a nightclub does, the faster they’re able to repay the advance. And, should transactions be lower on any given day, the draw from the merchant account will also be less. This means that during times of slow business, the nightclub’ payback is relative to their incoming cash flow.

Repayment Costs

A nightclub that uses a Merchant Cash Advance will typically pay back 15% – 40% or more of the amount borrowed. This percentage is called the factor rate.

Note: there’s a difference between the hold-back amount that a nightclub pays every day (as a percentage of their sales receipts) and the repayment amount for the entire advance. There could, for instance, be a hold-back of 15%, and a repayment of 30%, so it’s important for nightclub owners to understand this distinction.

The hold-back percentage is based on:

  • The amount of funds a nightclub receives

  • How long it will take to pay back the money

  • How big the monthly credit card sales are

For Example: A nightclub is advanced $10,000 and agrees to pay back $13,000. This means the payback, or factor rate, is 30%. Moving forward, the nightclub agrees to have 15% of the nightclub’ credit card transactions withheld by the advance company (the hold-back) until the $13,000 is collected. If the nightclub is averaging $14,500 a month in credit card sales, approximately $2,160 would be withheld each month and the advance would be paid back in roughly six months. Typical hold-back rates may range from 10%-20%, though this can vary widely based upon the nightclub and risk.

How to know if a Merchant Cash Advance is Right for Your Nightclub?

An MCA is an option when a nightclub needs access to capital quickly to take advantage of an opportunity to purchase inventory at a discount, a special marketing opportunity, or other short-term capital need. And, because credit requirements are less stringent, it could be an option for a nightclub that does a lot of credit card transactions, but might have less-than-perfect credit.

Even if your nightclub is growing, you may find yourself needing extra cash to cover day-to-day expenses such as payroll, rent and inventory, or to pay for short-term projects that could grow your revenue in the long run. Uneven cash flow is one of the biggest challenges of nightclubs throughout all industries.

For this type of nightclub financing, lenders provide you funds and use your future expected cash flow as collateral for the loan. You’re essentially borrowing from cash that you expect to receive in the future by giving the lender the rights to a predetermined amount of these receivables. These are primarily used for working capital or take advantage of short-term ROI opportunities. Your credit scores will usually be checked, but they play less of a role. As the name indicates, the lender is more concerned with inspecting your cash flow (usually bank statements) to approve your application. Turnaround time is another great feature of a cash flow loan, as funding usually takes place in a matter of days.

There are typically no restrictions on how you choose to use the funds from any of these funding options, as long as it’s used towards the nightclub. With that being said, some of the more typical uses of a cash flow loan, revenue based loan or merchant cash advance include:

  • Buying equipment – Could a new computer, desk, telephone, cash register or software come in handy? Money to pay for the purchase of necessary nightclub equipment could help boost your profits. And if this cash isn’t readily available in your account, a cash flow loan, revenue based loan or MCA can provide you with these funds.

  • Paying employees – Instead of running your nightclub like a one-man show, a few extra hands could really help. Spending borrowed money on employee’s salaries can be the answer rather than disrupting your cash flow to cover this expense.

  • Purchasing inventory – One of the most common uses for fast working capital is buying inventory. It takes products in stock to make nightclubs profitable, so it only makes sense to invest in enough inventory to make sure you always have enough to sell to clients.

  • Expanding the nightclub – If your nightclub is experiencing some success, you might want to start thinking about taking things to the next level. A lump sum of cash might be just what you need to get business booming.

Benefits of a cash flow loan, revenue based loan or merchant cash advance

In addition to the much easier method of obtaining working capital from a resource like LVRG than from a bank, a cash flow loan, revenue based loan and MCA has a lot of incentives when it comes to nightclub financing:

  • Much quicker approval times from LVRG than a bank. This translates to faster cash-in-hand, allowing you to take advantage of current market prices.

  • Whereas nightclub loans from a bank require you to have collateral in order to gain favorable consideration, LVRG requires you to be subject to a limited amount of conditions.

  • A cash advance or revenue based loan is also much more beneficial to the cash flow of a company since it does not require any monthly payments or upfront fees that are characteristic of loans.

  • There is no limitation on how the funds acquired from a cash flow loan, MCA, or revenue based loan can be used. Funds that are loaned through a financial institution must be used for the stated purpose by the nightclub. As a result, money from a nightclub loan has a very narrow scope of action as compared to money that comes from a cash advance or fast working capital loan.

  • No UCC-1 is required for either a revenue based loan, cash flow loan or UCC-1

Cash Flow Loans, Revenue Based Loans and Merchant Cash Advances from LVRG have helped thousands of nightclubs just like yours not only turn the corner, but pull ahead in the race. LVRG is one of the fastest growing companies in the industry, our expert funding advisors are ready to learn about your nightclub financing needs, while doing so with speed and transparency. Call us today toll free for more information (855) 998-5874 or click the button below to get started!