Whether you’re starting a beauty salon or you’re in expansion mode, taking out a beauty salon business loan can help turn your business dreams into a reality. Though you may not be able to find financing specifically designed for beauty salon owners, there are a number of small business loans — including SBA-backed term loans and equipment financing programs — that can give you the funding you need to start or grow your business.
Which type of small business loan will work best for your salon will depend on how much money you want to borrow, how you want to spend the funds, and how soon you need it. Here’s what you need to know to find, and apply for, a beauty salon business loan.
What Are Business Loans and How Do They Work?
Whatever type of business you own, a small business loan gives you access to capital so you can invest it into your company. The funding can typically be used for an array of different purposes, including working capital, renovations, buying equipment, staffing, real estate, and marketing.
When a lender is assessing if you are eligible for a loan and how much debt your business can afford, they will typically look at several different factors, including the condition of your business, available collateral, your cash flow, and the credit profile of the business, as well as your (the owner’s) credit profile.
Small business loans are available through banks, credit unions, and online lenders. Depending on the type of financing, you can find unsecured options that don’t require collateral or secured loans backed by your business assets or the item you’re purchasing. Interest rates can be fixed or variable, with repayment terms lasting anywhere from six months to 25 years.
Using a Loan to Open a Beauty Salon: Pros and Cons
A loan can help you improve or expand your beauty salon and increase your profits. But borrowing money always comes with risks. Here’s a look at the benefits and drawbacks of taking out a beauty salon business loan.
Pros of Beauty Salon Business Loans
A small business loan will allow you to invest in and grow your business. Financing can also solve cash flow issues that beauty salons can experience during growth, as you may need to increase staff and buy more equipment and supplies before getting paid by customers.
In addition, a business loan allows you to gain access to funding without diluting ownership of your company, as you would if you were to sell equity in your business.
Cons of Beauty Salon Business Loans
Loans aren’t free money. There is a cost, including both interest and fees. You’ll have to decide whether that cost is worth having access to capital. And, If you don’t have good credit, those costs could be fairly high, as you may not qualify for the lowest rates available.
Another potential hitch is that if you need the money right away, you may find the application and approval process frustrating. It can take months to get a business loan, especially one backed by the Small Business Administration (SBA).
(Learn more: Personal Loan Calculator)
Finding Beauty Salon Financing
The process of getting a loan for your beauty salon begins with looking closely at your business finances, figuring out what you want the loan for, and determining how much you will need. You’ll also need to gather some information and documents about your salon. The more work you do up front, generally, the easier it will be to apply once you find the right loan and lender.
Understanding Your Business
Before you start applying for a beauty salon loan, it can be a good idea to take a close look at the current financial state of your business. That means delving into things like your fixed costs, cash flow, operating margin, credit score, and annual revenue. If you’re looking to grow, you may want to build out or update your business plan to see, on paper, what that growth looks like.
Doing all this can help you figure out the type of financing that will help you most, as well as what size and type of loan you may qualify for. It will also help you prepare for the application process.
How Much Do You Need?
The next step is to determine how much of a loan you need to accomplish your goals. As you run the numbers, you may want to add some extra padding to your budget. If your goal is to open a second location and become profitable within three months, what happens if you aren’t profitable by then? Will you be able to still afford to repay the loan? A little extra money can help cover unanticipated setbacks or expenses.
When considering loan size, you’ll also want to make sure you can afford to make the monthly loan payments. Borrowing a million dollars to overhaul your business may sound fabulous, but what happens when that large payment is due? Not being able to make your payments puts you at risk of defaulting on the loan and could jeopardize your business.
Necessary Documentation
When you apply for your loan, the lender will want some documents about your business. These may include:
- Tax returns
- Financial statements (such as profit and loss statements and bank account statements for business and business owners)
- Corporation or LLC paperwork
- Business plan or proposal for how you plan to use the loan
- Owner’s photo ID
It can be a good idea to gather these documents now so that you’re ready to go when you start applying for a small business loan.One caveat: If you’re applying for a stated income business loan, also known as a no-doc loan, you won’t need to supply any financial documents that show your income, such as tax returns.
Loan Options for Beauty Salons
There are many different types of loans you can use to invest in your beauty salon. Below are some options to consider. It can be a good idea to compare business loan rates from multiple lenders to make sure you’re getting the best deal.
SBA Loans
If you have strong credit, you may want to look into an SBA loan, such as the popular SBA 7(a) program, for your beauty salon. SBA loans, which are backed by the U.S. Small Business Administration, stand out among small business loans due to their favorable terms — low rates, high amounts, and long payback periods. They are also highly competitive, which is why you need a high credit score to be considered a candidate.
SBA Microloans
Through the SBA Microloan Program, the SBA loans money to intermediary nonprofit lenders. These lenders then provide business loans of up to $50,000 to startups and small businesses, many of them run by women, minorities, or veterans. This can be a good option if you need a smaller amount of capital to purchase equipment or hire help and your business doesn’t have a long (or any) track record.
Term Loans
Small business term loans let you borrow a set amount of money that’s paid back with interest on a predetermined schedule. The SBA loans mentioned above fall into this category, but you can also find term loans not backed by the SBA that may be easier to qualify for. The lenders who offer these loans determine rates and terms based on your creditworthiness.
Both long-term and short-term small business loans are available. Which type will work best for you will depend on your beauty salon’s needs.
0% APR Credit Card
If you’re intimidated by the idea of borrowing a large amount of money, you might consider applying for a business credit card.
There are many 0% APR credit cards that offer no interest for a fixed period (often longer than a year). During this period, you can make a purchase for your salon without interest. You can then create a plan to pay off your balance before the introductory period ends and the standard APR sets in.
Along with giving yourself time to pay off your balances, you’re also building credit — which can help you access loans and credit cards with low interest rates in the future.
Business Line of Credit
Another alternative to getting a loan is to apply for a line of credit. With a business line of credit, you don’t get a lump sum of cash like you do with a loan. Instead, a line of credit gives you access to cash up to a pre-approved maximum. You can take out however much you need up to the limit, repay it, and then borrow it again.
This can help relieve temporary cash flow issues or help you seize opportunities as they present themselves. You only pay interest on the amount you use.
Equipment Financing
If you’re looking to upgrade the equipment in your salon, you might consider equipment financing. With this type of small business loan, you typically get a quote for the equipment you’d like to buy, and a lender will front you a significant portion of the cost. The asset you purchase acts as collateral for the loan.
This can be helpful for businesses that don’t have strong credit. However, if you default on the loan, the lender can seize the asset. This type of financing can also be limiting, as you can only use the funds for business-related equipment.
The Takeaway
There are many types of loans available to you as a beauty salon owner. The best rates and terms will typically come from the SBA 7(a) program if you qualify. You can find those through banks, credit unions, and online lenders. If you’re just starting out or don’t have stellar credit, you may want to look into an SBA microloan, as well as non-SBA short-term or long-term loans.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org
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I desperately need a loan now. Is a loan shark really my only option?
A loan shark is a person who lends money at an unlawfully high rate of interest or who threatens violence to collect debt payments. Loan sharks are predators who make extortionate extensions of credit to enrich themselves in violation of state or federal laws.
Loan sharks typically charge annual percentage rates of interest exceeding 36% APR and may have a reputation of punishing victims who fail to comply with their extortion tactics. Below we describe how a loan shark works and explain the loan shark definition.
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What are loan sharks and how do you define them? The loan shark definition generally covers any person who makes or conspires to make an extortionate extension of credit.
Some of the U.S. states have criminal laws specifically defining loan sharks as people who lend money at an unlawfully high rate of interest or who threaten violence to collect debt payments.
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Loan sharks are predatory lenders, but predatory lenders are not necessarily loan sharks. What is a loan shark? Some of the U.S. states have criminal laws specifically defining loan sharks as people who lend money at an unlawfully high rate of interest or who threaten violence to collect debt payments.
Predatory lenders can be legitimate financial institutions that take advantage of unsuspecting borrowers by concealing the true nature of their lending products. These lenders may persuade consumers to purchase extra services when opening a credit account.
Predatory lenders do not necessarily use extortion and other loan sharking tactics, but they may embrace aggressive sales tactics or deception to manipulate consumers.
Loan sharking relies upon coercion, while predatory lending relies upon unfair salesmanship. Loan sharks may have zero tolerance for delinquent borrowers, while predatory lenders may overlook a borrower’s ability to pay if the borrower offers or pledges collateral. Avoiding loan sharks and predatory lenders may help you avoid personal loan scams.
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A loan shark works by offering financing to people who need quick cash or capital. The loan shark may offer financing at unlawfully high rates of interest and may threaten violence to coerce borrowers into accepting and complying with illegal terms and conditions.
Loan sharks may target consumers who lack access to legitimate creditors. These illegitimate lenders may develop a reputation for violence that helps them enforce their extortionate extensions of credit. Loan sharks may start off friendly when disbursing funds and then become ruthless if borrowers fail to meet their repayment demands.
Example of a Loan Shark
Here are some examples of a loan shark:
- A private lender who threatens violence to collect a debt
- A predatory lender who charges excessive rates of interest
- An organized crime boss who makes or finances extortionate extensions of credit
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Working with a loan shark is generally a bad idea. Loan sharks are illegitimate lenders who rely upon illegal tactics for financial gain. Loan sharking is generally unlawful under federal and state laws against extortionate debt collection and criminal usury. Lenders are prohibited from charging excessive rates of interest under usury laws.
Loan sharks often have a reputation for violence and may threaten or harm borrowers who fail to pay their debts. Even if you’re willing and able to meet the ruthless demands of a loan shark, the interest you pay would be supporting an illicit practice. Loan sharks are not legitimate creditors.
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It’s illegal for lenders to threaten you with violence. Loan sharks, however, don’t necessarily play by the rules. Loan sharks are illegitimate lenders who make or finance extortionate extensions of credit.
Borrowing money from a loan shark is generally a bad idea, especially because the loan shark might threaten you if you don’t satisfy the loan shark’s extortionate demands.
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Below we highlight several tips for spotting a loan shark:
Check for Lender’s License
A legitimate lender in the United States generally needs a charter or license issued by a state or federal regulatory agency. Checking whether a lender has a legitimate lending license can help you spot a loan shark. That’s because loan sharks may finance extortionate extensions of credit without possessing a proper license.
Check for Financial Disclosures
Lenders of consumer loans generally have to disclose the terms and conditions of their consumer lending products. Checking whether a lender discloses your APR can help you spot a loan shark. That’s because loan sharks may offer extortionate extensions of credit without disclosing their unlawful terms upfront.
Check Lender Underwriting Standards
Legitimate lenders generally have basic underwriting standards in which personal loan approval is not guaranteed. A borrower generally needs proof of identity and proof of income to qualify for a consumer loan.
Checking whether a lender has basic underwriting standards can help you spot a loan shark. That’s because loan sharks may provide financing without verifying a borrower’s identity or income.
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Here are some tips for avoiding a loan shark:
Borrow From Legitimate Lenders
One way to avoid loan sharks is by borrowing money from legitimate and trustworthy sources. Loan sharks are illegitimate lenders who don’t play by the rules. Loan sharks may threaten violence to collect a debt, and they may charge excessive rates of interest.
Seek Loan Preapproval
You may avoid loan sharks by seeking personal loan preapproval from a bank, credit union, or legitimate private lender. Getting preapproved for a loan may help you understand whether a lender has basic underwriting standards and whether a lender charges lawful rates of interest.
Shop Around for Financing
Another way you may avoid loan sharks is by shopping around and comparing personal loan offers. Comparing personal loans interest rates and choosing a loan offer that’s right for you may prevent you from accepting extortionate extensions of credit.
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You may consider the following ways of borrowing money:
Personal Loans
You may take out personal loans for quick cash. Personal loans provide borrowers with a lump sum of money and payment schedule for repaying the loan. They can be secured with collateral or unsecured, and borrowers can spend the funds on almost any personal expense.
There are certain advantages and disadvantages of a personal loan. These consumer lending products can help you build credit, but personal loans in some cases may also carry annual interest rates up to 35.99%. Borrowers are expected to make on-time monthly payments over the life of the loan.
A bank, credit union, and private lender may consider a personal loan account in default once a borrower fails to make a monthly payment by its due date. Lenders may accept late payments to cure a default on a personal loan, unlike loan sharks who may retaliate with violence.
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Consumers can use credit cards to pay for goods and services on open-end credit. This revolving credit provides flexibility in managing your credit card balances each billing cycle.
You can apply for credit card accounts through a licensed bank or credit union. Every credit card account has a predetermined credit limit capping how much you can charge on the card. Cardholders are expected to repay their credit card debts over time and can make monthly payments that meet or exceed the minimum payment due.
You can generally avoid paying interest on credit card purchases by paying your statement balance in full each billing cycle.
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Consumers may borrow money from family members. A family member may be willing to loan you a lump sum of money without charging you interest.
Asking relatives for family loans can help you meet planned or unplanned expenses, but failing to repay them back in full could strain your relationship with them.
Some relatives may offer financial assistance without any expectation of repayment, but other family members may charge interest and demand repayment in full.
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Consumers with available personal savings may consider using those funds instead of borrowing from a lender or creditor. Any money you have deposited in a checking or savings account can be withdrawn and spent as you see fit.
A savings and interest-bearing checking account can allow you to earn interest payments on any money you’ve deposited into your bank accounts. Dipping into these savings can help you cover planned or unplanned expenses.
Using your personal savings to cover major expenses doesn’t increase your debt-to-income ratio and doesn’t require a hard pull inquiry into your credit report. Some savings accounts, however, may place limits on the number of withdrawals or transactions you can make during any monthly statement cycle.
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Loan sharking and predatory lending are discredited forms of financing that may violate state and federal laws in some cases. A 2006 federal law, the Military Lending Act, bans creditors from giving members of the U.S. armed forces high-interest loans charging more than 36% APR. At least 18 states and the District of Columbia have similar APR caps that effectively ban payday loans.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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