Money Matters

Is Merchant Cash Advance Right For You?

Merchant cash advances are easier to get than traditional bank loans. Advantages include quick funding and a repayment schedule that is tied to the salon’s cash flow. 

Every successful salon must invest in inventory and equipment to stay ahead of customer demand and to remain competitive. Every few years, a major upgrade is needed, such as a salon 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 nail salons, seeking a traditional bank loan is even more challenging as an average loan for $15,000 is often considered a microloan, and too costly for a bank to underwrite. 

One alternative finance option for nail salons is merchant cash advances (MCAs). 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.

Merchant cash advance company American Finance Solutions counts hundreds of nail salons nationwide as clients. Most of these nail salons use the capital advance for equipment (i.e. more chairs and facility upgrades), product inventory, new hires, and marketing. Seasonal needs are also a key impetus for funding. For example, nail salons may need to 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 when choosing an MCA, as not all are created equal.

Look for the following:

> An ethical, holistic approach. Banks reject half of small business loan applications because they rely on the credit quality of the owner and the value of collateral to support the credit decision. Banks can overlook and ­ignore good businesses because they don’t look at the overall health of the business based on its sales. A major benefit of working with an MCA ­involves a focus on the general health and future prospects of the business, not the owner’s personal FICO score. Also, an ethical MCA should be willing to tell a business what is truly the right amount they can afford.

> Quick turnaround time. A quality MCA can fund your salon in less than 10 days. This is important for times when you need to buy more inventory or supplies quickly, fix a piece of equipment, or make renovations.

> Flexible, realistic repayment ­schedule. The average repayment for a cash advance is less than 25% of the funded amount. That means that if a business is advanced $20,000, they will likely pay back about $25,000 ­total. It varies per business and ­depends largely on how much they need and the length of the term. Also, since many nail salons need cash ­during high season, the ­benefit of an MCA repayment schedule is that 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 salon’s cash flow.  


What to watch out for:

> The MCA tries to advance you more money than you need. The reason some MCAs do this is to get a higher repayment amount from the salon. Beware of MCAs that try to charge more than approximately 25% of the amount advanced.

> The MCA charges interest on top of the repayment fee. Look for an MCA that does not charge an interest rate, though there may be a one-time processing fee.

> The MCA is an agent, broker, or reseller. Your business needs to work with a company that is the direct funding source. Otherwise the agent may take a cut of your advance or require his own fee for connecting you to an actual MCA.


Editor’s note: NAILS spoke to Scott Buchanan, owner of  Scott J SalonSpa, for another point of view.  Buchanan is also the vice chair on PBA’s board of directors, president of the Salon/Spa Leadership Council, and chair of the PBA Education Committee. He advises caution before taking any action that will affect your revenue stream. Not only is MCA an expensive way to get money, you may be unhappy when the credit card dollars you are used to receiving don’t come in.


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


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