Looking to start your beauty salon or nail salon business? One of most important details is equipment. The beauty industry is one business that can’t function without it. Even with a tight budget, you don’t want to cut corners with equipment investments. Fortunately, with salon equipment financing, you don’t have to. Learn about this type of financing and how it can help.
What is Equipment Financing?
Equipment financing is the process of leasing or purchasing equipment using an installment plan. It’s a convenient way for businesses to get the operating equipment they need. That way the business can bring in revenue without being cash poor. It helps maintain cash flow and gives business owners a chance to build working capital.
How Does Beauty Salon Equipment Financing Work
When you’re ready to furnish your new beauty salon with chairs, dryers, sinks and more you will get in touch with a vendor. They will give you a quote for the items. Next, you will complete an application with a lender and provide the quote. The lender will determine if you qualify for beauty salon equipment financing and the amount you can receive. When you’re approved to received equipment financing, you’ll sign an agreement specifying the loan or lease terms. Once you’ve finished making payments, you have several options:
- Keep the equipment you purchased
- Return the equipment you leased
- Purchase the equipment you leased
- Renew your lease
- Trade in the leased equipment and upgrade to new items
Main Differences Between an Equipment Lease and Equipment Loan
Just like an auto loan, an equipment loan means the equipment is financed to own. Once you’re done making each payment on the term loan, you get to keep the equipment. Equipment leasing is like renting the equipment for a certain term. When you’re done making payments, you no longer have access to it unless you exercise your right to purchase. The best option depends on your purpose for the salon equipment and how often your industry makes changes.
What to Purchase with Equipment Financing for Salons
Equipment financing allows you to purchase almost anything for your business. What you can purchase depends on the amount you’re approved for and if the lender accepts the quote. For beauty salon equipment financing and nail salon equipment financing, some things you should purchase are:
- Point of Sale Devices
- Beauty station chairs
- Professional Salon Hooded Dryers
- Nail tech station
- Spa pedicure chairs
- Foot spas
Pros and Cons of Beauty Salons and Nail Salon Equipment Financing
Using equipment financing for your nail or beauty salon prevents depleting cash or going without materials you need. If leasing your business will also benefit from the ability to do trade-ins. Always having the newest equipment will help business grow. With the right items, you will attract new clients, improve your production and generate more revenue.
One of the best benefits for startup beauty salons is not needing a personal guarantee or outside collateral. If you’re working to build your credit, this is a huge advantage.The value of the equipment acts as collateral for the financing. A lien on the property allows the finance company to recoup some of their loss from the broken installment agreement. If the business owner stops making payments, the finance company has the right to seize and sell the equipment.
Some companies also allow clients to get equipment without showing financials. However, they will finance higher amounts with financial documents. With equipment financing, the approval process is quick and simple. You can find out if you’re approved in as soon as a day. Payment plans can be flexible with monthly and seasonal payments or deferrals. Loan interest rates can be as low as 5% and are fixed.
One thing that is a pro and con of leasing is the tax advantage. With leased equipment, you can use payments as tax deduction, which benefits the business. However, you may have to use a deprecated method which means gradual deductions over the life of the equipment instead of a full deduction every year.
A drawback of a purchasing with beauty salon equipment financing is the constant updates of equipment. If the business owner has extended terms, the equipment may be outdated by the time the loan matures.
How to Get Salon Equipment Financing
Getting access to nail salon or beauty salon equipment financing depends on a few things; your financial history, credit score, and ability to pay, and equipment value. To get started, you need to complete a credit application. The application will require information about the price of the equipment.
New businesses have not yet established business credit and don’t have tax statements.In that case, the lender might rely on personal history to determine creditworthiness. You may also need to provide your driver’s license tax returns or bank statements.
Financing Options for Business Equipment
The U.S. Small Business Administration collaborates with financial institutions to offer an array of loan programs with different standards to fit all types of businesses. Startup businesses can apply for microloans to fund any business need (except for real estate). Therefore, new salon owners can use the loan to finance equipment. This program accepts applicants who ordinarily wouldn’t get approved because of lower credit scores.
Unsecured Business Line of Credit
Normally, the recommendations is to use an unsecured business line of credit for short term financing only. Temporary working capital to pay employees, advertisement to promote services, or travel expenses to attend a beauty/trade show would work best for unsecured business lines of credit. However, the source of funding may work to pay for small salon equipment.
You shouldn’t buy big ticket items like commercial grade dryers or spa chairs using an unsecured business line of credit. Even though you don’t have a collateral requirement, that could do more harm than good. With the price of the chair plus fees and interest, it would take too long to benefit from the investment.
Salon equipment financing is a sound program to give new business owners a great start. An equipment lease or loan, it serves the same purpose of preserving cash at at time when the startup salon needs it most. Before making any final decisions about salon equipment financing, work with a credit expert to learn more.