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Case Study

Funding your hotel business with Merchant Cash Advance

An alternative to conventional funding

When the owners of a small hotel found that they were facing a business downturn because of the lockdown, the owner could not arrange conventional funding. When their bank was unable to increase their CBILS funding, they approached us at Rangewell. Despite a poor credit rating, we found a solution with an MCA. 

The national lockdown has been a disaster for many businesses. Hotels, especially, faced unique problems as they were closed for months - and then found few guests returned, even when the lockdown was relaxed

Our client owned a small hotel in the West of England. Like many businesses, it had been hit by the downturn. 

“Usually, we would have a steady summer season with business travellers making up the most of the bookings the rest of the year. This year there was the lockdown, and holiday travellers were few and far between. Business travellers were not coming in at all.” 

With a commercial mortgage to pay, along with their other overheads, the client had applied to his own bank for CBILS funding but found that they were not prepared to help. His own credit history was not good and the lenders he spoke to were pessimistic about the outlook for the hotel sector.

He turned to us at Rangewell for help. 

The challenge of a poor credit history

It soon became apparent that his credit history was so poor that most forms of lending would not be available to him, and those lenders who might be prepared to help would expect very high rates of interest. 

We needed to find an alternative to the more traditional forms of finance.

We always work closely with our clients - and looked at our client's accounts with him. We were able to find a lender able to offer a secured loan of £25,000, but the costs were prohibitively high and, while it might have helped deal with his immediate cashflow issues, it would make his hotel business unsustainable in the near future with large repayments in excess of his projected takings. 

Fortunately, we knew there could still be an alternative, with a Merchant Cash Advance.

What is a Merchant Cash Advance?

Fixed monthly repayments are inevitable with a traditional loan, however, a Merchant Cash Advance - or MCA - presents no such problem.

They can be ideal for any business that receives a high proportion of their takings from card payments and provide funds without the need to make regular repayments - or indeed repayments of any kind.

With an MCA, the provider works with the card payment processing company and may offer a cash advance equal to your monthly card takings. They will then take a percentage of every card transaction made to the business until the cash advance and their fees are paid off.

The advance is paid back automatically as customers make card payments - making them particularly suitable for hoteliers and others who now take the majority of their payments from cards.

Instead of causing problems with cashflow with a fixed repayment, the MCA will keep pace with the level of business that you do.

It means your customers repay your cash advance for you - and the more business you do and the more customers pay by card, the faster the advance is paid off. 

The lender will look at takings in a typical month and may base the sum that may be advanced on that level of income. In the case of our client, this was close to £20,000.

This made it simple to provide an advance of £20,000 and meant that, despite his poor credit record, he could have a reserve to call on while cashflow was causing problems.

“People have started heading back to work - you only have to look at the roads to see the proof of that. Things are still slow, and people are working from home if they can, and that means they are still not buying sandwiches at lunchtime in the numbers that they used to. 

We are still watching the costs as a result - but thankfully, with our MCA, it does not matter. There is no monthly payment for me to make - my customers are doing that for me.”

How we helped

With the increased use of card payments, there are now many lenders providing MCA funding in the UK. Their fees and the percentages they take to fund repayment will differ so getting the agreement that is right for your business is essential to keep your costs down.

We found an MCA provider who understood the hospitality sector and who was prepared to offer the most attractive fee structures to our client. We helped him make the necessary arrangements - which brought his business the funds it so vitally needed in a matter of days. 

Rangewell finds the financial solutions that your business needs

No matter what challenges your business has faced over the last 12 months, our funding experts will be able to discuss your options and work out the most cost-effective ways to provide the funding you want.

We are independent and we know the entire lending market. That means we can take a view that will put your interests first - and if you have not been successful because of your bank’s lending policies, we will work to find one that is more sympathetic.

At Rangewell we can help you arrange all types of business funding - including MCA arrangements. Call us if you face a funding challenge - we can help you find the answers. 

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