Are you having trouble getting a loan from traditional lenders? If you don’t have the collateral or you can’t qualify for business-term loans from traditional banks, this can seriously set your salon business back. But not to worry, there will be a type of financing that will suit your salon’s needs.
In this article, we will discuss loans for beauty salons and how to get them. Whether you need a high amount to make a commercial real estate purchase or money to replace that hood dryer equipment that keeps breaking down, we’ve got you covered.
Beauty Salon Business Startup Expenses
Starting a beauty salon business will have a ton of business expenses that come along with it. You will need to plan and prepare what you will need before opening day. Here are some common startup expenses salon owners will be looking at:
- Salon/spa inventory: Whether it be hair products, beauty treatments, or skin care products, you will need some inventory once you start your business. Expect to pay around $20,000 just for the initial inventory you will be working with.
- Salon equipment: You will need new equipment like nail salon stations, shampoo bowls, massage tables, dryers, or treatment equipment. For a full hair salon, you are probably looking at around $27,000 for everything you’d need.
- Utilities: To keep the electricity on and the water running, you will need some money for your monthly utilities.
- Commercial real estate: If you are purchasing an existing salon, you could be looking at anywhere from $40,000 to $250,000. But if you want to build from the ground up, the estimate is more like $100,000 to $500,000.
- Business insurance: You are legally obligated to have insurance for your business. The average salon business insurance costs anywhere from $300 to $5,800 yearly depending on the policies you need.
- Beauty licenses and permits: To operate, you will need a business license, health and safety permits, and seller’s permits (for retail). And of course, those working in the salon (including yourself) will need a Cosmetology License to practice nail or hair style, waxing, and any beauty treatments. All of these expenses vary from state to state.
- Hiring employees: Chances are you will need to hire some more employees. Make sure you have enough to pay them a fair wage. Hire knowledgeable and personable hair stylists and estheticians that will keep customers coming back to your business.
Which of the above expenses will you need to get financed? Knowing the current state of your finances and your goals will help us find the right beauty salon financing options for you.
Examine Your Finances
Now that you know how expensive it can be to open up a beauty salon, you will need to examine your finances. Before you start filling out your loan application, consider the following:
- Timeline: How soon will you need access to the money? Try to figure out how urgently you will need the loan disbursement. Some types of loans take longer than others, which means they may not fit your schedule for opening the salon.
- Use: Will you be using the loan for equipment financing, working capital, building repair to an existing salon, or for a real estate purchase/refinancing? Knowing exactly what you need the money for will help us determine what loan will work best for you.
- Loan amount: After taking a hard look at your finances, determine the loan amount you will be needing. Consider whether you want the payment in one lump sum, or would you prefer to withdraw the money periodically as needed. If you are unsure how much you will need, a business line of credit could be a good choice for you.
- Repayment: How long do you think it will take you to pay back the loan? Some short-term loans will need to be paid back in a matter of months, while others will give you years to pay them off.
Look at your finances under a microscope. What can you afford and what can’t you afford? Be as detailed as possible. Because the more you know and understand your finances, the more favorable you will be to your lenders. Once you’ve decided on all of these areas, it is time for you to apply for your loan.
Create a Business Plan
First, you will want to make yourself a business plan to submit to your lender. If you haven’t prepared one yet, here are some elements that are important to include in your business plan:
- Executive summary: Briefly describe why your beauty salon needs the money. Provide a brief background of your business.
- Company description: Describe your client base and how you want to connect with them. What exactly will your company be doing?
- Operational plan: The operations plan should describe how you intend to carry out the goals of your beauty salon.
- Services: Detail the services you plan to carry out for your potential customers. What needs are you meeting for your clients? Explain how this is a profitable mode of income, including detailed pricing.
- Market analysis: Talk about how you have a competitive advantage in your target market. Give a competitive analysis and price comparisons.
- Management and personnel: Explain how you will hire your stylists and any other personnel.
- Sales and marketing strategies: How do you plan to reach new customers? Include your sales strategy. Will you use social media or other marketing strategies to reach your target market?
- Financial projections: Try to predict your state of finances five years ahead. This will give the lender an idea of where your business is headed financially.
- Funding request: Come up with a specific amount of money you need for business financing. Show the lender how you determined that amount. Include your assets and how much you will be contributing to pay for the needs of your business.
Besides your business plan, your lender will want to look at your financials, such as annual revenue, credit reports, bank account statements, tax returns, and more. Have these documents ready upon request.
Loan Options for Beauty Salons
After you’ve gotten your business plan and submitted it, it is time to apply for your loan. You can either apply online or in person at a traditional bank or credit union. But what kind of loan is right for your business needs? Here are the most common types of loans that work best for beauty salons:
Small Business Administration (SBA) loans
This type of loan is perfect if you have good credit and you’re not in a hurry to get the money. Many businesses prefer SBA loans because they’ve got low-interest rates, can lend high amounts, and you don’t need to pay them back immediately. This means this is the perfect option if you are looking to start up a beauty salon!
But how are SBA loans able to offer such preferable terms? This is because up to 85% of the amount is backed up by the U.S. Small Business Administration and your lender carries less of the risk. There are several varieties of SBA loans that might suit your business. Here are a few of them:
- SBA standard 7(a) loan: Great for that day-to-day working capital you’ll need to keep your business running. Typically repayment will be within a few years and sometimes even up to 10 years. The SBA 7(a) loan program can also help you purchase or expand your salon, or buy new equipment. You may even be able to refinance business debt in some circumstances!
- SBA express loan: If you are looking for a quicker financing option, this might be the one for you. Borrowers can get approved much more quickly, making it the perfect option when you’re in a rush. The maximum amount you can borrow is $500,000.
- SBA microloans: This may be the best option for new salon owners with no business credit score or established time in business. And if you are just looking for a small amount to be funded by your lender, you may want to consider this SBA microloan. It helps to have a good personal credit score.
These loans have a maximum of $50,000 that you can borrow, and usually do not have the strict credit requirements that other SBA loans might have. The maximum repayment term for SBA microloans is six years. Ready to apply for your SBA loan? Check out our SBA programs and apply today!
Equipment Financing Loans
Another option for small business owners is equipment financing loans. New salon owners need a lot of capital to pay for the equipment they will be using like chairs, tools, or hair wash sinks. And if you don’t have the cash lying around, equipment loans could be just what you need to get your business off the ground.
How do you get a business loan for equipment? Simply get a quote for the equipment you are looking to buy (even for small tools like combs or scissors), and submit it to your lender along with your application. Check out our equipment financing options here.
Equipment financing is typically a self-secured loan, meaning the assets you are getting financed may be used as collateral. So if your credit is not the best, it gives the lender something of value to hold onto if you don’t pay back the loan.
Working Capital Loans
So you’ve got the doors open and customers are coming to you for their beauty needs. But are you still having trouble keeping the day-to-day operations running smoothly? There always seems to be a new expense popping up around every corner. That’s where working capital loans come in.
Working capital loans are perfect for those added expenses that you just don’t have the extra money for. This could be for things like repainting a wall, buying hair care products, purchasing uniforms for your stylists, paying for advertising, repairing equipment, or balancing the cash flow on slower days.
These kinds of loans typically have an easier approval process that will quickly get you that cash in hand. Here at Coastal Kapital, we offer working capital loans with the following kinds of terms:
- 3 months to 2 years of short-term micro business loans, with a value of up to $3 million
- 2- to 4-year terms, with a value of up to $500,000, for expansions and inventory
- 2- to 5-year terms for collateral
Getting a salon business loan for working capital is simple. Just apply online here, get a quote, and get approved!
Business Line of Credit
The last one we will recommend is not a business loan, but a credit line for your salon business. This can be very helpful for those salons with cash flow problems or for those special expenses that tend to pop up unexpectedly. The problem is that if you don’t know how much you’ll need, it can be tough to ask your lender for a certain amount.
A business line of credit will solve that problem by allowing you to only spend what you need, then you only pay interest on the amount you use. This differs from a traditional loan that gives you a lump sum. When you have a revolving line of credit, you can re-up as soon as you pay them back.
Along with business credit cards, this is a great way to build up your business credit, by the way. If you are interested in getting a business line of credit, apply through Coastal Kapital today!
Make Your Blossoming Business a Success!
Keeping up with the expenses of a beauty salon can be challenging. But with a painless application process, you can secure financing to make your blossoming business a success. Here are Coastal Kapital, we offer loans for beauty salons that will suit your business needs and goals.
We’ve got SBA loans, equipment financing, working capital, and even lines of credit. All you have to do is examine your finances, credit a business plan, and fill out an application. It’s that easy!