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Hair Salons and Spa Service Industry Loans

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The Hair Salon and Spa Industry has seen large growth in the past few years, with economic census reports showing that the hair salons and spa services comprise a $40 billion industry. With a growing interest in beauty, relaxation, and personal care on the rise, it is a very lucrative time to open hair salons and spas. What makes the hair salon and spa industry so attractive to entrepreneurs is that they appeal to clients in every economic bracket, and there is never a shortage of customers.

However, many people who want to open a hair salon or spa do not take into account everything needed to run the business. Outside of business location and equipment, many hair salon and spa owners overlook the financing needed to hire and train staff, keep products in stock, the money needed to advertise the business, as well as insurance policies.

While that might seem like a lot to manage when asking for a hair salon and spa industry loan, there are many options available in order to finance your hair salon or spa. From traditional banking institutions to non-traditional lenders, it is not hard to find a hair salon and spa service industry loan that fits your business model. The best way to figure out which hair salon and spa service industry loan is right for you is by familiarizing yourself with the different types of business financing.

Hair Salon and Spa Service Industry Loans: Which Loan Product Is Right For Me?

Unsecured Business Line of Credit

Hair salons and spa service industry businesses may not have the initial collateral needed to back a loan. In this case, it may be necessary to arrange for an unsecured line of credit. Unsecured credit is structured around the hair salon's needs, as well as the financial strength of the business itself, the business owners, and the salon's cash flow history. Most unsecured credit loans have stringent financial requirements, as the lender assumes 100% of the risk in the initial investment.

SBA Loans

Two of the more popular alternatives to traditional loans for hair salons and spa service industry businesses are the Small Business Administration's (SBA) 504 and 7(a) loan programs. The SBA usually backs 75% of the loan, which eases the amount of risk that the banks or other lending parties assume in financing a hair salon or spa service industry business. In order to receive this type of funding the borrower must meet the SBA loan eligibility requirements and adhere to the SBA Standard Operating Procedures for loan underwriting.

The popular SBA 7(a) product implements loan pricing using the Prime Lending Index plus a maximum spread of 2.75%. Some lenders offer variable financing, which allows for more flexibility in the interest rate because the interest rate goes up or down along with the Prime Index. SBA loans are usually structured around the hair salon or spa service's assets that are offered as collateral.

Conventional Loans

Conventional loans typically offer flexible terms and pricing for hair salons ans spa service businesses, and lending institutions are able to give even lower pricing based on the strength of the loan request. Conventional loans are arranged through traditional banks and even some non-banking lenders. If your business is looking for flexible terms and pricing, conventional loans offer both, because the lenders can giver lower pricing for more robust requests.

Conventional loans can be arranged through traditional banking institutions and even non-bank lenders. Conventional loans are not guaranteed by a third party, so the bank or lending institution assumes the full risk of the loan. Because of this, the credit standards on conventional loans are typically higher than other forms of financing.

Asset Based Lines of Credit

Often, hair salon and spa service industry businesses arrange asset-based lines of credit with lending institutions. This way, the hair salon or spa receives funding based on the value of the assets and equipment used by the company. The higher the value of the equipment offered up as collateral, the greater the available line of credit.

Seller Carry Finance

If you are looking to buy an existing hair salon or spa industry business, it is usually possible to arrange the terms of the pricing and financing with the owner. Instead of getting the full price, both parties negotiate the pricing, the period upon which the transaction will be completed (typically 3 to 5 years), and the rate of interest on each payment made. The added advantage to this for of financing is that the previous hair salon or spa owner is usually willing to oversee training of new staff during the transition period to ensure the future success of the business.

Merchant Cash Advance

A merchant cash advance is a loan based on credit card receivables. Lenders offer merchant cash advances based on the volume of credit card sales a hair salon or spa has over a given period. In order to qualify for a merchant cash advance, the hair salon or spa must have a physical establishment, as well as an established record of credit card sales. The higher the volume of sales, the greater the amount of the cash advance. Merchant cash advances are typically considered to be short-term funding. They can be arranged quickly, but have higher pricing and interest terms than other hair salon and spa industry loans.

Credit Parameters for Hair Salon and Spa Service Industry Loans

Credit parameters vary between banking institutions and non-traditional lenders, depending on the market hair salon and spa industry loans. Banks and other lenders like to reduce their investment risk and inspect the collateral available to back a loan. This helps them measure their Loan To Value (LTV) ratio.

Given the demand for hair salons and spa services, combined with the history of success of hair salon and spa service industry businesses in a given area, some lenders are willing to arrange loans as low as 55% on up to a maximum of 90% of the available collateral. Debt Service Coverage Rate (DSCR) is a measure of the available cash flow from a hair salon or spa business used to cover loan payments.

Most lending institutions require a minimum of 1.25X to 1.35X of the available incoming cash to be dedicated to payments on the hair salon or spa industry loan. Most lending institutions prefer a higher ratio to that there is a buffer zone in case of a downturn in sales, or any unforeseen problems a hair salon or spa may run into down the road.

Banks and lenders will also weigh the personal credit and financial history of the primary borrower, which will be detailed in a comprehensive credit report.

Hair Salon and Spa Services Industry: Economic Impact

Hair salon and spa service businesses were some of the few areas that weathered the economic crash of 2008 without suffering a tremendous loss. With new advances in beauty and care treatments, as well as increasing numbers of people who want to look and feel their best, hair salons and spas are considered to be very lucrative and profitable investment opportunities by banks and lenders. Hair salons and spa service businesses do not only function as places for people to get their hair done, but they also function as social centers in cities and neighborhoods across the country.

Apply for Hair Salon and Spa Services Industry Loans

Hair Salon and Spa Service Industry loans are many and varied, so it is easy to speak with a consultant to find one that fits your business model. When applying for Hair Salon and Spa Industry financing, most banks and lenders require:

  1. Tax records
  2. Business plan
  3. History of sales
  4. Projected earnings
  5. Inventory
  6. List of product suppliers.

If you are looking to get a start-up off the ground, the banks and lenders will require a detailed history of the borrower. Most lending institutions will offer a list of supporting documents required when going over the loan application.

Applying for hair salon and spa industry loans has never been easier, with any of the 5,000 lenders on BoeFly. A single loan request though BoeFly is the fastest and most efficient way to get the hair salon or spa industry loan that best fits your your venture.

BoeFly also has one of the fastest turnaround rates because, while many banks can start the lending process, BoeFly helps hair salon and spa business owners by by creating competition among lenders, thereby giving you a wide array of financing options, terms, and pricing.

Ready to start? Contact BoeFly at 1-800-277-3158 for a free consultation.