Funding Your Spa: What You Need to Know About Merchant Cash Advances, MASSAGE MagazineIn 2012, 83 percent of spas implemented one or more changes to their business, including increased number of treatment options, additional spa programs and more retail product offerings, according to the International Spa Association’s 2012 U.S. Spa Industry Study. Every successful massage practice and spa must invest in inventory and equipment to stay ahead of customer demand and remain competitive in their neighborhoods. Every few years, a major upgrade is needed, such as a renovation, new equipment or just capital for marketing.

The problem is, most owners don’t have the cash flow necessary for these outlays and must look at outside funding options to help grow their business. Many owners first try to secure traditional bank loans, but approximately seven out of 10 loan applications are rejected. For spas, seeking a traditional bank loan is even more challenging, as an average loan for approximately $15,000 is often considered a microloan and too costly for a bank to underwrite.

One of the best alternative finance options for spas is a merchant cash advance (MCA). An MCA offers businesses a lump-sum payment in exchange for a share of future credit card sales. An MCA is a quick and flexible financing option that can provide solid businesses with necessary capital in a matter of days, not months like traditional lenders. Also, while banks require approximately five years in business, most MCAs will provide financing to businesses in operation for just one year.

Many spas use this type of capital advance for equipment, product inventory, new hires and marketing. Seasonal needs are also a key impetus for funding. For example, spas gear up for an influx of summer business, so owners typically secure an advance in the spring to stock up on supplies.

Below are tips on what to look for and watch out for when choosing an MCA, as not all are created equal.

What to look for in an MCA:

  • An ethical, holistic approach. Banks reject half of small-business loan applications because they rely on the personal credit history of the owner and value of collateral to support the credit decision. Banks often overlook and ignore good businesses because they don’t consider the overall health of the business based on its sales. A major benefit of working with an MCA involves a focus on the cash flow and future prospects of the business, not the owner’s personal FICO score. Also, the finance company should make sure it offers a contract with reasonable repayment terms and only offer an amount the business can afford to payback.
  • Quick turnaround time. A quality MCA can fund your spa in a week. This is important for times when you need to buy more inventory or supplies quickly, fix a piece of equipment or make renovations in order to stay open for business.
  • Flexible, realistic repayment schedule. The average repayment for a cash advance is less than 25 percent of the funded amount. That means that if a business is advanced $20,000, they will likely pay back approximately $25,000. This varies per business and depends largely on how much financing is needed and the expected repayment term. Also, since many spas need cash during high season, the benefit of an MCA repayment schedule is owners don’t have to repay a high, fixed amount per month during their slow season. Instead, they pay by having a small percentage from each credit card transaction deducted, so payment is tied to the spa’s cash flow.

What to watch out for:

  • They try to advance you more money than you need. The reason some MCAs do this is to get a higher repayment amount from the spa. Beware of MCAs that try to charge high rates and add on fees prior to you securing financing.
  • They charge interest on top of the repayment fee. Some MCAs charge an interest rate on top of a fee.
  • They are an agent, broker or reseller. Your business needs to work with a company that is the direct funding source or else it may take a cut of your advance or require a fee for connecting you to an actual MCA.

Do your research and you will find the right MCA to help your business survive and grow. When you work with a savvy MCA that allows you to get quick funding and repay it in a time structure that best works for you, your massage or spa business will be able to address its needs and thrive as a result.

Scott Griest is the founder and chief executive officer of American Finance Solutions, one of the nation’s fastest-growing merchant cash advances for small businesses. For more information, visit