Small Business Center
By Susan Guillory
If you work in the salon industry, you know that opening and running a beauty salon isn’t cheap. Your business needs to cover a wide range of expenses, from items like hair color and combs to paying for the stylists that work for you. Beauty salon business loans can help you fuel growth and fund other business initiatives.
Even if your salon is thriving, you may, from time to time, find yourself in a cash crunch. It could be a slow season, or you might need to make a large investment in your business and you need the cash on hand to do so. To keep cash flowing, explore your business financing options.
Before we dive into your loan options, why take out a loan at all? Small business loans can give you the working capital you need to keep your salon business running smoothly. That might mean you have the opportunity to open a second location … or simply pay your stylists and business expenses during a slow period. Essentially, a business loan gives you the freedom to take advantage of business opportunities that might arise, as well as ensure that you never lack money for the things your business needs.
When it comes to loan options for your beauty salon, you have several. Which you choose depends on your specific needs, as well as what type of financing options you qualify for.
Also called working capital loans, these are often offered by traditional banks and credit unions, though there are also online lenders offering longer-term loans. These tend to offer decent rates, though qualifying for them may be more challenging than with other options.
The Small Business Administration offers several loan programs, but by far, the SBA 7(a) is the most popular. You can use SBA loans like this one for a variety of expenses, including working capital, real estate and equipment. Rates for SBA loans are among the lowest.
You don’t always need a lump sum of cash all at once, and that’s where a business line of credit comes in. You are approved for a set amount, and you can borrow up to that amount at any time. Once you repay it, you can borrow it again.
You likely need to purchase equipment for your salon, things like professional hairdryers and chairs. Equipment loans are specifically designed to help you get new equipment without breaking the bank.
Business credit cards are another option to help you cover expenses for your salon, and if you use a rewards card smartly and pay your balance in full each month, it can be like you’re getting paid to use it!
If you don’t have good credit, there are short-term loan options that will get you the financing you need but at a higher cost. These lenders tend to look at other qualifying factors besides your business and personal credit scores.
While not technically a loan, a merchant cash advance fronts you money based on credit card sales that you repay each day or week from your transactions. The interest tends to be higher on this option.
The application process for salon owners may vary from one lender to another, but generally, you can expect to be asked certain things in the application process:
Hair salon financing lenders will look at your personal credit history if you don’t have any business credit history. If that’s the case, learn how to establish business credit so you can qualify for even better rates.
You’ll also be asked for the loan amount you’re requesting in the loan application, as well as details about your bank account so funds can quickly be deposited into your account once you’re approved.
Each lender will have a different set of qualifications for small business owners looking for financing.
With some financing options, such as bank loans and SBA loans, your business or personal credit score will factor heavily into the decision-making process. While not guaranteed, a high credit score can help you secure lower interest rates and favorable repayment terms.
How long you’ve been in business will also be important. Many lenders don’t want to give money to a salon that has been in business for less than two years. Being in business for a while shows that your business has established itself and has steady revenue and therefore is able to make those monthly payments.
Your annual revenue, debt to credit ratio and monthly expenses may also be considered in your application.
Research the lender you’re considering to learn what its qualifications are, if they’re posted on the website. Not all lenders make this information public. If you don’t meet the credit score requirement, for example, look for another lender. It’s always a good idea to shop around because you might end up with a better deal if you apply with several lenders.
And if you can’t qualify for an SBA loan or traditional loan, know there are those other options like short-term loans, merchant cash advances and credit cards, but carefully consider these because they will cost you more with higher interest rates and origination fees.
If your salon business could benefit from an infusion of cash, consider beauty salon loan options like what we’ve discussed here. Business financing can be a smart idea, as long as you have a clear understanding of how you will use the money to grow your business. A beauty salon loan does, after all, cost you, so make sure it will reap a solid return on your investment.
This article originally appeared at www.nav.com.