How Can I Use Loans for Beauty Salons?
The way you use the loan depends on stipulations from the lender. Some allow borrowers to use the loan how they see fit. Others cover specific business needs, like the equipment loan we’ll discuss. To make sure you’re getting the right type of loan, make a list of your operational activities within the beauty salon.
Think about covering these business needs while doing financial planning for your salon:
- -Beauty supplies
- -Salon Equipment
- -Advertising and Marketing
- -Payroll and Commissions
- -Building Expenses (Rent or Purchase)
- -Licenses and Fees
- -Working Capital
This varies based on several factors. The size of your salon could mean more or less in expenses. Your location, the economy, and the length of time you’ve been in business could also affect your cash flow needs. The amount also depends on your budget for each area of expenses.
You may want state-of-the-art chairs and dryers or just basic ones. You may invest a small amount in digital marketing versus spending thousands on billboards. If you charge booth rent, you don’t have to worry about payroll or commission. Lenders also review these factors to decide if you qualify for salon business loans.
Review the financial section of your business plan to see where you are. Yours may already include your beauty salon funding need. If you’re not on target, look at how much you fall short. Using the list above, compare your projected numbers to your actual business performance. That determines how much you need and how you’ll use the loan.
Most beauty salons can benefit from one of three types of small business loans: unsecured business lines of credit, equipment financing, and SBA microloans.
Unsecured Business Lines of Credit
Most entrepreneurs use unsecured business lines of credit for short term working capital needs. These loans work whether you want to preserve your beauty business cash flow or you’re cash poor. They’re the most flexible with how you can use the funds and the repayment terms. Unsecured business lines of credit have also been the most accessible for those still building.
Here’s how these business lines of credit work.
Like a credit card, an unsecured business line of credit is revolving debt. Unlike a term loan that ends at maturity, you can use a business line of credit, repay it, and use it over again. You pay variable interest on the outstanding loan principal. Lenders consider it unsecured because you don’t need collateral to qualify.
How to Qualify
Many small business owners turn to unsecured business lines of credit because they don’t have rigid requirements. Traditional bank loans might require lengthy business history, financial reports, high credit scores, and collateral. Unsecured business lines of credit base decisions on good personal credit history over the last five years.
Before you apply, be prepared by having:
- -A personal credit card with at least a $5,000 limit
- -Good debt to available credit ratio
- -Credit report reflecting good payment history
Pros and Cons
The approval process is easier and quicker than other options. You’ll see have access to the money faster with unsecured business lines of credit. Your beauty salon can use the funds for whatever part of the business you need to. If you make payments on time, you can have lifetime access to the funds. The best advantage is that it helps borrowers build business credit.
The advantages outweigh the disadvantages with unsecured business lines of credit. Still, keep a few things in mind before applying. This source of funding has higher fees and interest and are not good for long-term funding. In other words, don’t use these to purchase high ticket items for your business. You’ll see a faster return by investing the money in marketing or your salon or products.