Magazine for the professional nail industry.
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BUSINESS} 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. BY SCOTT GRIEST 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 when you need to buy more inventory capital advance for equipment (i.e. more or supplies quickly, fix a piece of equipchairs and facility upgrades), product ment, or make renovations. inventory, new hires, and marketing. > Flexible, realistic repayment Seasonal needs are also a key impetus schedule. The average repayment for a for funding. For example, nail salons cash advance is less than 25% of the may need to gear up for an influx of funded amount. That means that if a summer business, so owners typically business is advanced $20,000, they secure an advance in the spring to stock will likely pay back about $25,000 up on supplies. total. It varies per business and Below are tips on what to look for depends largely on how much they when choosing an MCA, as not all are need and the length of the term. Also, created equal. since many nail salons need cash Look for the following: during high season, the benefit of an > An ethical, holistic approach. MCA repayment schedule is that ownBanks reject half of small business ers don't have to repay a high, fixed loan applications because they rely on amount per month during their slow the credit quality of the owner and the season. Instead they pay by having a value of collateral to support the credit small percentage from each credit decision. Banks can overlook and card transaction deducted so payment ignore good businesses because they is tied to the salon's cash flow. don't look at the overall health of the business based on its sales. A major Scott Griest is founder and chief executive ofcer benefit of working with an MCA of American Financial Solutions, one of the involves a focus on the general health nation's fastest growing merchant cash advances and future prospects of the business, for small businesses. For more information, visit not the owner's personal FICO score. www.americanfinancesolutions.com. Also, an ethical MCA should be willing to tell a business what is truly the right amount they can afford. > Quick turnaround time. > The MCA tries to advance you more money than you A quality MCA can fund your need. The reason some MCAs do this is to get a higher salon in less than 10 days. repayment amount from the salon. Beware of MCAs This is important for times that try to charge more than approximately 25% of the EditorÕs 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 afect 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. 114 | NAILS MAGAZINE | JUNE 2013 WHAT TO WATCH OUT FOR: 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.