Med Spa MSO Structure: How Lenders Finance It
A med spa MSO structure is one way non-physician owners may participate in an aesthetic business in states that limit who can own a medical practice. Instead of owning the medical entity directly, the business owner owns a management services organization, or MSO, that provides non-clinical support to a separately owned professional entity. That arrangement can work operationally, but it changes how lenders evaluate and secure a loan.
This article explains how lenders generally look at the MSO model. Ownership and management rules vary by state, and nothing here is legal, tax, billing or compliance advice. Any structure should be designed and reviewed by healthcare counsel and accountants.
What Is a Med Spa MSO Structure?
In a typical arrangement, there are two separate businesses:
- The professional entity: owned by a licensed physician or other permitted provider, it provides medical services and makes clinical decisions.
- The management services organization: owned by the entrepreneur or investor group, it provides the space, equipment, non-clinical staff, marketing, billing support and administrative services.
The two entities sign a management services agreement. The professional entity pays the MSO a fee for its services, and that fee is how the business owner participates in the economics of the med spa. How the fee is set, and what control the MSO may and may not exercise, are legal questions that depend on state law. Our guide on who can own a med spa explains why these structures exist.
Why Lenders Look at an MSO Differently
In a single-entity practice, the lender can look at one set of financial statements and one business that earns revenue and holds assets. A med spa MSO structure splits those pieces apart.
The professional entity collects patient revenue, while the MSO may own most of the equipment, hold the lease and employ much of the staff. The MSO’s income is the management fee, which depends on an agreement with an entity it does not own. Lenders need to understand both sides before they can evaluate the deal.
Who Is the Borrower?
One of the first questions is which entity should borrow. Depending on the use of proceeds and where the assets sit, the lender may lend to the MSO, the professional entity or both.
- Build-out and equipment: if the MSO holds the lease and owns the devices, it may be the logical borrower for those costs.
- Working capital: funding may be needed in whichever entity pays the expenses.
- Acquisitions: buying an existing business that already uses this model may involve purchasing assets or interests in both entities.
Lenders may also ask related entities to co-borrow or provide guarantees so the loan is supported by the full business.
How Lenders Underwrite MSO Cash Flow
Lenders generally want to know that the business as a whole generates enough cash flow to repay the loan. With an MSO, they may review:
- Financial statements and tax returns for each entity
- The management services agreement, including the fee method and term
- How consistently the fee has actually been paid
- Combined or consolidated financial results that show the whole operation
- Provider compensation and medical director costs inside the professional entity
If the fee is adjusted frequently or not paid as written, a lender may find it harder to rely on the MSO’s income. Clean, consistent accounting between the entities can make the review easier.
Key Documents Lenders May Request
Beyond standard financial records, a med spa MSO structure usually means more legal documents for the lender to review:
- Organizational documents for each entity
- The management services agreement and any amendments
- Medical director and provider agreements
- Any agreements that address what happens if the licensed owner leaves or the relationship ends
- The lease and any landlord consents
- A summary from counsel describing how the structure works
Lenders may ask for consents or assignments that protect their position if the management agreement ends. These items can add steps to closing, so it helps to have them organized early.
Risks Lenders Weigh
The main concern with any med spa MSO structure is continuity. If the professional entity’s owner or medical director leaves, the business may not be able to provide services until a replacement is in place. Lenders may consider:
- How long the management agreement runs and how it can be terminated
- Whether there is a plan for replacing the licensed owner or medical director
- How dependent revenue is on a single injector or provider
- Whether the structure has been reviewed for compliance with state law
A well-documented plan for these situations can help a lender gain comfort.
Financing Options for MSO-Based Med Spas
Depending on the business and its owners, financing options may include SBA-backed loans and conventional loans. SBA 7(a) loans may support start-ups, acquisitions, expansion and working capital when the business and its owners meet program requirements. Eligibility and terms depend on the business, the buyer, use of proceeds, program rules and lender review, and every loan is subject to approval.
Conventional practice loans follow each lender’s own underwriting standards and may suit established operators with strong financial history.
Preparing Your Med Spa MSO Structure for a Loan
Before applying, owners can help their case by:
- Having counsel confirm the structure fits state rules
- Keeping separate, accurate books for each entity
- Paying the management fee as the agreement provides
- Preparing combined financial reporting for the whole business
- Writing a med spa business plan that explains the structure in plain language
Our overview of med spa loan requirements covers the credit, experience and liquidity factors lenders review for any borrower.
Final Thoughts
A med spa MSO structure can give non-physician owners a way to build an aesthetic business, but it adds layers that lenders must understand before they can finance it. Clear documents, consistent accounting and a plan for provider continuity can help present the business as a single, understandable operation.
US Medical Funding helps med spa owners and investors finance start-ups, acquisitions and growth, including businesses that use management company models. Learn more about our med spa loans and our med spa practice financing options.
