To start a salon business, you’ll need enough cash flow to rent or buy a location, hire employees and obtain the necessary equipment. It can be rather costly, and you may need a loan or line of credit to make it happen. Depending on how you plan to use the funds, there are a few different types of small business loans to consider for your salon project.
Term loans
This is probably what comes to mind when you think of a small business loan. Term loans provide a lump sum of money that is repaid with interest through fixed payments.
Term loans are offered by both traditional banks and online lenders. While loans from traditional lenders tend to have lower interest rates and fewer fees, the criteria to qualify is much stricter than what you’ll find with alternative lenders.
Additionally, traditional lenders may take a few weeks to process your application and deposit your loan funds, which may not be ideal for salon owners with urgent financing needs. Though the cost of borrowing tends to be higher, online loans may provide funds as soon as the same day you apply.
Business lines of credit
If you would prefer to have ongoing access to funds, a business line of credit could be a better financing option. With a line of credit, you can borrow funds as needed up to a predetermined limit. Once you make a withdrawal from your credit line, you’ll begin making payments on the borrowed amount — but you’ll still be able to borrow more, assuming you haven’t reached your limit.
Business lines of credit can be beneficial because they reduce the risk of borrowing more than you can afford to repay. However, they may come with additional costs, such as maintenance or draw fees.
Equipment financing
To open a beauty salon, you’ll need to invest in essential furniture and equipment such as stylist chairs, shampoo stations and professional hair tools. Depending on the scope of your salon, equipment costs could add up quickly. If equipment expenses exceed your available funds, equipment financing might be able to make up the difference.
Equipment loans are designed to finance essential business equipment. Some lenders provide enough financing to cover the full cost of equipment with no down payment required, and with lengthy repayment terms, you can spread out equipment costs over several years.
That being said, the equipment typically acts as collateral to secure the loan, so if you fall behind on your payments, the lender could seize the asset to recoup its losses.
SBA loans
The U.S. Small Business Administration (SBA) partners with financial institutions to provide financing for business owners that might not be able to qualify elsewhere. Thanks to the backing of the SBA, lenders are able to make funding more accessible and affordable, with interest rates capped to keep loan costs manageable.
However, SBA loan applications require detailed documentation, and it could take two months or longer for approved businesses to receive their funds. Working with an SBA Preferred Lender can shorten this wait to two weeks, but that is still a longer turnaround time than what you can expect with other types of loans.
Commercial real estate loans
If you decide to purchase commercial space for your salon, you might need a commercial real estate loan. These loans are similar to residential mortgages, typically requiring a down payment of 20% or more and using the property as collateral to secure the loan. Commercial real estate loans tend to have lengthy loan terms, with borrowed funds repaid in monthly installments.