Looking for a small business loan for beauty salon renovation, growth, or just to cover a cash flow shortfall or pay the rent? There are several types of business loans available.
There are even choices for beauty entrepreneurs with less than ideal personal credit, despite this industry likely being considered as high risk by many lenders.
Types of Loans For Beauty Salons
Loan Option 1 – An SBA Loan
The SBA 7(a) loan is the most popular small business loan offered via the Small Business Administration. But note that it can take a while to get this form of beauty salon financing.
According to the SBA, this SBA loan is the best option when real estate is part of a business purchase. But a small business can also use such financing for:
- Short and long-term working capital
- Refinance current business debt
- Purchase furniture, fixtures, and supplies
The maximum loan amount for a 7(a) loan is $5 million.
To qualify for an SBA loan, a business must be a ‘small business’ as per the SBA’s own rules. The small business owner must have reasonably invested equity. And they will have to prove a demonstrated need for such a beauty salon loan.
A beauty salon not needing a very big capital loan might do better with a microloan. Microloans are small business loans where the amount generally does not exceed $50,000.
And a beauty salon that needs working capital sooner rather than later should opt for an SBA Express loan. SBA Express loans are expedited, so it will not take months to get business funding.
Loan Option 2 – Beauty Salon Equipment Financing
Equipment financing is a great way for business owners to be able to afford what they need to grow, without having to lay out 100% of the costs upfront. In this way, a salon business is like any other form of business.
With this hair salon financing option, you may be able to lease to own. With these beauty salon business loans, business owners should weigh whether leasing or buying makes more sense for them.
Terms for equipment financing can generally be for up to 60 months, whether it is a lease or you are buying the equipment. This will depend on the type of salon equipment and whether it is new or used. New vs used is another decision business owners should take into account.
This is not an unsecured business loan as often the equipment serves as the collateral for the lender. The presence of valuable collateral may make these salon loans easier to get.
If you work with an alternative funding provider to get this type of salon business financing, you may be able to get away with just a soft credit pull. But a more traditional lender might do a hard pull on your credit.
Loan Option 3 – A Merchant Cash Advance
Merchant cash advances are designed to get small business funding based on expected future cash flow. This form of salon financing is based on credit card receipts.
A beauty salon can get an MCA if they have provable credit card receivables. If your cash flow goes up, then your loan payment goes up. And when cash flow drops, you pay back less for these sorts of beauty salon business loans.
This continues until a small business has paid off the entire MCA.
As business loans go, an MCA tends to have very high-interest rates. It’s an expensive form of funding. But for owners with poor personal credit, these can end up being some of the only business loans they can get.
With an MCA, the lending decision is based more on the reputation of the cardholders versus the salon. This is why an entrepreneur can get these business loans even if their personal credit is not otherwise up to par.
But if an owner wants to spend less on funding, there are better salon loans out there if they can improve their personal credit first.
With lending requirements tightening and banks making it harder to work with a credit partner, an owner should make improving personal credit a top priority.
Loan Option 4 – A Bank Loan
These are often term loans. A term loan is what we normally think of when we talk about lending. The salon owner borrows a set amount of capital and then pays it back. A term loan can come from a traditional lender (like a bank) or an alternative lender.
Term loans have predictable payment schedules and can often have good interest rates. When they come from a traditional lender, a company owner will often have to provide a great deal of documentation.
Necessary documentation for this type of salon business loan can include a small business plan, bank statements, and tax returns.
With term loans, qualifying, at least in part, is often tied to your personal credit score. Therefore, if you have bad credit, you will often end up with a smaller loan amount. And the length of your term loan will be shorter as well.
If you have credit issues, your best bet is to get business credit cards and work to build a business credit score. Also, clean up your personal credit and try to raise that credit score as well. Taking action to improve and enhance your credit now will save you money later.
Loan Option 5 – A Business Line of Credit
In general, a business line of credit behaves a lot like a card, but without plastic. Essentially, an owner can tap into capital reserves up to a certain amount. Unlike regular business loans, interest is only charged on the amount borrowed.
When a line of credit is paid back, the total amount is replenished. Then a business owner can borrow from it again and again.
Many entrepreneurs want a business line of credit. But this funding can be hard to get. Entrepreneurs can often improve their odds of qualifying if they secure the line of credit.
Many lenders will require a personal credit score of about 680. However, there are some which will accept scores of 580 – 600. A salon will have to prove a certain minimum business revenue. This can range from $10,000 per month to about $250,000 per year.
Lenders will often want a minimum amount of time in business. For an online lender, that time can be as low as six months. However, more traditional lenders will want one or two years in business.
A beauty industry owner will need to supply documentation. This is often:
- Personal and business tax returns
- Business licenses
- Articles of incorporation
- Personal and business bank statements
- Profit and loss statements
- Financial statements
- Business plan
- Building lease
Best Beauty Salon Loan Options
Loan Provider 1 – National Funding
National Funding offers small business loans and equipment financing and leasing for beauty salons. Apply online and receive funding in as little as 24 hours.
With small business loans, get up to $500,000 as a working capital loan, or a short-term business loan. This lender requires a business to be in operation for at least six months and have at least $250,000 in annual sales to qualify for a loan.
Use a working capital loan to cover regular expenses, particularly if the business is slow. Use it to cover shortfalls in cash flow, and to cover expenses that are planned, and those that are not.
Their short-term business loans can help an owner improve their credit score over time. As long as they make all payments on time and pay off the loan according to schedule, they will likely see a rise in their credit score.
Their short-term loans typically range from 6 to 18 months. Some are available for owners with poor personal credit.
With their equipment financing option, get funding of up to $150,000 for equipment crucial to the salon. These salon loans can be used to lease or purchase equipment, with no down payment. They will lend for the purchase or lease of new or used equipment.
Flexible payment options are available for beauty business owners.
Financed new or used equipment can qualify for a Section 179 tax deduction.
This law now allows for depreciation on used equipment, though it must be “first use” by the purchasing business. The rules allow Bonus Depreciation to be 100 percent for all qualified purchases made between September 27, 2017 and January 1, 2023.
Loan Provider 2 – Camino Financial
Camino Financial offers financing of up to $400,000 with fixed interest rates and minimal requirements.
They offer startup loans for up to $7,500 with monthly payments. Repayment terms are 12 – 36 months. The current annual interest rate is 33% to 35% (APR). This is a fixed rate.
The origination fee is $90 in California, and $0 in Florida, and is included in the APR. To qualify, the salon must have a monthly income of $1,500 or more and have a bank account that has been active for at least six months.
They also offer microloans of up to $30,000, with monthly payments. Repayment terms are 24 to 36 months. The current annual interest rate is 28.50% to 57%. This is a fixed rate.
The origination fee is currently 6.99% of the amount borrowed. To qualify, a salon must have monthly revenue of $2,500 (or $30,000 per year). They must have an active and registered business, for at least nine months.
Finally, Camino Financial offers a beauty salon business loan for up to $400,000, with monthly payments. Repayment terms are 24 to 36 months.
Currently, the annual interest rate is 21.75% to 27.5% at a fixed rate. The origination fee is 5% of the amount borrowed.
To qualify, a salon must have a monthly revenue of $2,500 (or $30,000 per year). Also, they must have an active and registered business for at least nine months.
Loan Provider 3 – OnDeck
OnDeck offers the following options for beauty industry lending:
- Business lines of credit
- Short-term business loans
To qualify for a line of credit, a beauty business must have an owner with a personal credit score of 625 or better. The salon must have been in business for at least one year. And it must have annual revenues of $100,000 or better.
To secure the line, OnDeck requires a personal guarantee.
Get a line of credit for up to $100,000, with weekly periodic payments. There is a $20 monthly maintenance fee. This is waived for six months if the salon draws $5,000 or more in the first five days after opening the account. Funding is in as little as one to three days upon approval.
For a short-term business loan, a salon owner must have a personal FICO score of 625 or better. The salon must have been in business for at least one year. And it must have annual revenues of $100,000 or more.
Loan amounts go up to $250,000. Repayment terms run from three months to 12 months, with daily or weekly periodic payments. Get funding in as little as one to three days upon approval.
Note: they are not an SBA lending provider. For all types of loans, they can provide a decision in as little as one day.
OnDeck will only do a soft pull on credit. They will report payments to business credit bureaus so that every time a salon pays on time, it is building its business credit.
Loan Provider 4 – Lendio
Lendio offers beauty industry financing with a fifteen-minute application that allows for access to over 75 lenders.
- Business term loans
- SBA loans
- Business lines of credit
- Short-term loans
- Equipment financing
- Commercial mortgages
- Business acquisition loans
Lendio also offers business credit cards. A salon can build business credit with some of its card offerings. Interest rates currently run up to 31%. Get a credit amount of up to $150,000.
For business term lending, pay a fixed interest rate that is currently starting at 6%. A salon can get up to $5 million in as little as 24 hours.
With SBA loans, Lendio offers the 7(a) and 504 loans, plus the SBA Express loan program. Get up to $5 million in one to three months. Interest rates are tied to the Prime Rate.
For business lines of credit, get a revolving amount of funds to pull from as needed. These lines of credit can go up to $500,000. Get capital in as little as one or two days. Right now, interest rates run from 8% all the way up to 60%.
With short-term loans, a salon can get up to $500,000 in as little as 24 hours. At this point in time, interest rates start at 8%.
With equipment financing, get up to $5 million in as little as 24 hours. Currently, interest rates start at 7.5%.
For commercial mortgages, use the capital to buy, build, expand, remodel, or even refinance the salon business. Get up to $5 million in as little as one to three months. Currently, interest rates start at 4.5%.
For business acquisition loans, get up to $5 million in as little as thirty days. Current interest rates start at 5.5%.
Loan Provider 5 – SnapCap
SnapCap is affiliated with Lending Tree. They offer same-day approval and next-day financing. Get up to $1 million with all of their lending offerings.
A salon business will need to provide minimum revenue information, the owner’s FICO score, and the type of business entity, e.g. s-corporation, sole proprietorship, etc.
- Working capital
- Expansion loans
- Inventory loans
- Equipment loans
- Small business lending
With working capital lending, get financing to smooth out cash flow peaks and valleys, consolidate debt, or take on the market expansion.
Among other purposes, beauty salons can use a SnapCap expansion loan to expand a startup because SnapCap typically only wants one year in business.
For salons that sell hair or skin care products, inventory loans could be a great way to make sure they do not run out of products. In particular, if demand spikes during the winter holidays or the wedding season, an inventory loan can help a beauty business meet demand.
SnapCap offers unsecured inventory loans for terms ranging from six to 18 months.
Faster equipment lending means a salon business will not have to settle for replacement equipment it does not really want, just to minimize any downtime.
With SnapCap small business lending, get up to $1 million in as little as 48 hours. Terms run from three months to 36 months. With unsecured business lending, SnapCap will decide on qualifications based on current business performance.
A beauty company’s current business performance can be a difference maker when it comes to the amount to be lent as well.
Beauty businesses have numerous choices for lending. Get sums in the millions. Finance expansion or equipment replacement or inventory stocking. And salon owners with less-than-ideal personal FICO scores don’t have to be left out, either.
For help navigating all these choices—and to explore even more options—contact Credit Suite today. Our advisors will be happy to work with you to find the best lending option to suit your beauty business’s needs.