Everybody wants to look good, right? And you have the skills and creativity to make that happen. If you’ve dreamed of owning your own salon, you know that it takes money. If approaching a bank for a small business loan, or the SBA, leaves you with the same reaction as you have to clients who use boxed hair color, read on!
A salon owner juggles many roles: stylist/colorist, procurement, janitor (somebody has to sweep up all that hair!), marketing guru and receptionist. That doesn’t leave you much time to complete the mountains of paperwork you need to approach a bank. And, let’s face it, if you are an upstart, you probably don’t have perfect (or any credit.)
The good news is that there are alternative methods of financing your salon. The application process is quick, painless and can be completed entirely online. The even better news is that you will know very quickly (even in the same day) if your loan was approved. That certainly is more appealing than having to wait indefinitely to hear back from “traditional” lenders.
Before you get started, there are a few common-sense rules: Don’t compare the rates to a bank loan because they are totally different beasts in the application process, interest rate and repayment structure. Secondly, do your homework. Read online reviews and if you know a financial advisor, pick their brain.
There are other options to get your salon up and running while keeping its finances looking great. Let’s take a look at a few:
Lines of Credit – Short Term Loans
Online lenders such as my recommendation Kabbage loans, consider the big picture regarding your salons finances — not just your credit score. They will review all of the accounts you use for making financial transactions (e.g. your bank accounts, credit card merchant payment processing, PayPal, eBay, Amazon, etc.) as well as your business software, such as QuickBooks™. This data will provide an overview of your financial history; cash flow and payment history in real time.
When approved, you can use your beauty salon line of credit for whatever you need, without restrictions like other loans, salon equipment, supplies, retail inventory, overhead, marketing, licensing and emergencies. You don’t have to put up any kind of collateral – which is great for small growing companies likes yours.
You can get a loan for up to $250,000 and repayment terms range from 6-to-12 months. You apply online and can receive a response in as little as 10 minutes and the money is deposited in your PayPal or bank account within a day or so.
To repay the loan you pay x-amount every month, which includes the amount of the loan plus an additional fee (if there is an outstanding balance.) The payments are automatically deducted from your bank so you never have to worry about forgetting to pay and incurring late fees. Additionally, your loan is renewable. In other words, once you’ve paid it off, you can reuse it. It’s like having a second line of instant credit!
The trade-off is that you will pay a higher interest rate than traditional lenders in a shorter period of time. Additionally, you won’t be paying a fixed sum each month. The repayment amount will vary based on your salon’s performance. You can anticipate that by checking in with Kabbage online (they even have a mobile app.)
Merchant Cash Advance
Merchant cash advances are a good financing solution for salons that do a large volume of credit card business and sell products. Point-of-purchase sales work well in salons because your ecstatic client will be eager to purchase all the products you used for her hairstyle or facial.
A merchant cash advance works by the lender giving you an advance on future credit card sales. Thus, there is no predetermined limit on how much you can borrow. You will get an advance amount (the funds you need), plus the factor rate, which is similar to interest rates. Lastly, is the retrieval rate, which is the percentage you agree to have withdrawn from your credit card account each month to repay the advance.
With an MCA you can complete the application online and you will need to provide previous credit card statements. MCAs typically have a high approval rate and you will receive the funds in around 48-to-72 hours. Repayment is based on credit card sales. If you have a slow month, the amount will be less and vice versa. However, the lender is always going to take the retrieval rate off the top.
Keep in mind that this is not a liquid source of funding, like a loan. The funds are paid into whatever credit card you use for your salon. Keep that in mind the money can be used for the purchase of inventory and little else. In a pinch, it could be converted to a cash advance for overhead expenses but won’t work in that capacity for the long haul.
Now that you know about other sources of funding to open your salon: Keep America Beautiful!