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Introduction
Beauty salons, hair salons and spas are amongst the most ubiquitous types of small businesses prevalent today. However, these types of shops can also be quite capital intensive as owners first have to invest into procuring supplies and equipment before actually initiating their operations. Thereafter, there are further operating and overhead costs which require healthy levels of cash flow to be able to service them. While this may sound overwhelming, there are multiple business financing options available to hairdressing businesses and spa businesses that can be availed to launch a successful beauty salon venture.
Steps prior to raising financing
Before obtaining a hair salon business loan, there are some questions that have to be asked by each business owner to themselves. These are:
How stable or consistent are your earnings?
If the hairdressing business experiences seasonal trends i.e. significantly more people in one season than another, then a loan that has a fixed repayment amount each month may not be the best option, particularly if itâs a large sum of money to be repaid. In this case, a revolving loan facility (discussed later in this article) might be more suitable.
What percentage of expenses can be covered by cash already?
The funding shortfall between revenues and expenses is what the business owner needs to identify on a month to month basis. Once this shortfall figure is clear, the owner can then choose from the suite of loan options to see which one best aligns with his/her goals.
What are your revenue projections?
If the business has achieved stability in revenues and generates a consistent amount each month, then the business financing options available to such a business would be more versatile than a salon that has inconsistent revenue numbers. Inconsistency in this case is synonymous with risk.
What is the operating history of the business?
A hair or beauty salon that has been around for 5+ years and has an established brand in the neighbouring region is a much stronger candidate for lending than a business that has only recently started up. More experienced owners offer better industry knowledge and management expertise as well beyond just the added financial strength and stability.
What is your credit like?
A business with poor credit will likely gain lending terms that are unfavourable compared to a business with good credit. This can include anything from higher interest rates to a lower range of beauty salon financing options available to them.
Beauty Salon Business Loan Options
Once these questions have been adequately answered, it is time to look at the options on the market. While there are many types of commercial debt options available to hair and beauty salon businesses, the main ones are:
Frequently Asked Questions about Spa and Beauty Salons Loans
How do I choose the best option for my spa business?
Before deciding upon a loan type, the main questions the borrower needs to ask are how quickly they need to gain capital, what is the purpose of the loan, what loan structure they can reasonably afford and repay, how much time they need the loan for, and how much capital they need.
Can businesses with little or no operating history get loans?
While a lot of lenders do require a certain level of operating history, it is still possible to get loans even as a new business. That said though, these loans are likely to be expensive. It might be a better alternative to borrow from friends and family, dig into your personal savings or use other such means to get the business up and running before tapping commercial debt finance.
How long does it take to get a loan for a salon business?
The wait times for your spa or salon business loan will depend on the lender. Banks should take anywhere from one week to two months. Online lenders will take one day to a few weeks.
MCAs are usually provided the fastest, while term loans and lines of credit take longer to process.
Can I get a business loan for a salon or spa with bad credit?
Yes, you can. There are business lenders who specifically service business borrowers with low credit scores
. Some lenders provide loans to business owners with both high and low credit scores.
Keep in mind that bad credit will cause your application to be rejected by many lenders, especially banks. You can also expect worse terms and interest rates on any loans you take out. However, you will almost always have access to at least a few business loans.
To see our tips on how to borrow responsibly please watch the video below. To see more educational videos on loans and financing, subscribe to our YouTube channel.
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