Running a beauty salon requires additional capital. Whether you need to invest in an extra inventory or a marketing plan, choosing the right financing can be the best way to scale your business.
It’s just that many lenders consider a beauty salon as a high-risk business. Typically, much of its business’s capital is tied up in overhead, its inherent cyclical nature causes slow sales, and its loyal customer base takes time to develop.
We’d all love to access that extra capital as soon as possible. However, realistically, it’s not that easy. You have to go through the bumpy road of proving your business’s creditworthiness to the lenders. Moreover, you must carefully consider what going into debt means, as owing money for a loan that you need isn’t something that should be taken lightly. Here’s where to start.
Determine Your Salon’s Financial State
Get a sense of your business’s financial state. Check your salon’s cost, projections, operating margin, revenue, and the like. Other than that, you need to be aware of the answers to the following questions:
- Do you earn relatively consistently? Or do you earn better during a specific period of time (peak season)?
- Do you cut costs or pay them with spare cash?
- Does your company have good credit or bad credit? As the owner, do you have good credit or bad credit? Does it have an outstanding debt?
- Are you starting a business without a track record, or do you have a growing revenue?
- How long have you been doing the business?
Understand Your Goals with Getting a Loan for Your Salon
Securing financing is one of the most pressing issues for most businesses, and beauty salons are no exception. Lenders have to know your intention for a loan, like whether it’ll help you in scaling your salon or just keep your business above water.
You want to be more detailed with the kind of financing you want to get and how you’ll be using it for your business loan. The more thorough you are, the more favorable you’ll be in the eyes of the lenders. Here’s what you need be clear of:
- Do you need the capital ASAP? Or can you wait to get better terms?
- How are you going to use the capital?
- How much do you need?
- What kind of loan do you want to access?
- How much time do you need to make repayments of your loan?
All points listed here aren’t exhaustive, of course. Even so, the said ten questions can help you in figuring out the kind of loan you’ll be the most eligible for—and that’ll help your salon the most.
Know Your Options
Although salons are considered a high-risk business, that doesn’t mean your options are limited. You just have to know the best approach in dealing with your financing needs. Here’s a list of your best financing options:
1. Traditional Bank Loans
Securing a line of credit or term loans from banks offers the most inexpensive source of capital for your business. They generally have low rates and have generous terms. It’s just that if you need the capital now, this could be a non-starter. Its underwriting process is very lengthy and time-consuming, and, even worse, its approval rates are low.
2. SBA Loans
Small Business Administration (SBA) has agreeable terms and lower interest rates, as well. However, if you have a bad credit rating, this might not be your option. You need to have a credit score of 600 or above, a minimum of $180,000 annual revenue and have been running a business for at least four years. Its application process takes too much time, too.
On the flip side, there are other SBA loan alternatives that you can opt for, including:
7(a) Loan. You can borrow up to $5 million (as working capital) with repayment terms over 7-25 years.
- CDC/504 Loan. You can borrow up to $5.5 million (but only used to fixed assets like equipment) with repayment terms up to 20 years.
- Microloans. You (usually for startups) can borrow up to $50,000 with repayment terms up to six years.
3. Online Lenders
Unlike bank and SBA loans, online lenders tend to have quick underwriting processes for as fast as within a day. What’s more, they offer a variety of financing options. You’ll just have to be more careful with their interest, APR, and factor rates.
4. Business Line of Credit
If you think you might get fed up with a repetitive approval process, a business line of credit can be your option. What you’ll have to do is just to draw on, repay, then repeat. It acts like revolving credit and an insurance policy to your business, especially during slow days and for unforeseen expenses. Its only downsides are its upfront fees and low borrowing cap.
5. Equipment Financing
This is one of the best options, particularly for salon owners who need to invest in expensive pieces of equipment. What you purchase is your collateral. Hence, there’s no need to put up extra funds to secure the loan, and you pay the cost of a large purchase in installments. That said, expect equipment financing to come with higher fixed interest rates.
Takeaway
It’s crucial to be keenly aware of a loan’s true cost and be self-assured in your investment. While you need the fund for your capital right away, take time to find the best financing for your salon.