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Business Loans for Beauty Salons: Funding Options Available

Guide to Business Loans for Beauty Salons
Susan Guillory
Susan GuilloryUpdated February 15, 2024
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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.
Provides the capital you need to growYou’ll pay interest and fees on the loan
Can help solve monthly cash flow problemsIt can take a fair amount of time to get approved and funded
Gives you access to funding without taking on investors and diluting ownership of your companyWithout a strong credit score, you may not qualify for a loan with a low interest rate

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).

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. Recommended: Guide to Typical Small Business Loan Requirements

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.Ready to start looking for the right loan for your beauty salon? Lantern by SoFi can help. With our online tool, you can quickly review and compare small business loan options that meet your needs and qualifications. There’s no obligation and you only need to fill out one application.

Frequently Asked Questions

What credit score is needed for a salon business loan?
How much does financing a beauty salon cost?
Can you open a salon with no money?
Photo credit: iStock/imaginima

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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