Things to Know About Beauty Salon Financing

Changes to the US demographics occurred over the last two decades and have caused deep customer habit changes concerning beauty care. Baby boomers are getting older, and millennials are turning into the biggest population segment, so there is a new image to fashion.

Besides the demographic changes, people spend less money in salons nowadays. Big salons are replacing the boutique ones. Besides, top-of-the-line hair care goods are diverted to supermarkets, online stores, and mass drugstore chains, where these are retailed at deeply discounted rates.

Despite the headwinds in the service sector area, beauty salons keep expanding, and these grew even in the 2008 economic recession. There has been around 3.3% growth in it in the last 5 years, but the industry is showing signs of resilience and optimism. Financing an American salon is more important today than in the previous 5 decades.

Beauty Salon Loans - Overview and Background

According to the Professional Salon Industry Haircare Study in 2017, total revenues for salon services and retail increased only 2%. Overall American salon service and retail sales increased by just 2% to reach $63,000,000. Almost 257,000 salons and barbershops situated in the US utilize and sell hair care items. Anyhow, the number of salons came down by 5% because several conventional, commission-based salons closed, and big salon suites were launched.

Going by this chart, the growth in this sector appears to be contracting, yet on an upward trend. The industry is expected to have accelerated growth when youngsters turn into more financially sound customers, with more money available to spend on professional care in salons. Anyhow, some beauty salon sector experts dispute the preeminence of mega salons over the other industry players. The idiom, ‘the bigger the better’ rings true for beauty salons. You should contemplate the above when seeking a loan that is specialized for beauty salons.

Beauty Salon Financing – Industry Trends and Style Drivers

Celebrities created almost every style trend some fifty years before. Think about how Jacqueline Kennedy (Jackie) influenced virtually a whole generation of American women to follow her hairstyle and clothing look. A more recent example of a celeb with a similar kind of influence is Jennifer Aniston, whose ‘Rachel’ haircut became a cult thing in the US. These are iconic movements in the US fashion sector that captured the imaginations of millions of Americans.

Gone are those days when Americans followed the said trends, whether the result of it is good or bad. Social networking websites have fragmented the focus of fashionistas in the world. As per Franchisehelp.com, which provides details about beauty salon franchise opportunities, around 80% of women feel that social networking websites cause fashion trends to occur. For salon stylists and owners, the speed of change presents a watershed period: instead of changing styles occasionally, many people are changing these and color daily.

The Small Business Development Center (SBDC) the Network States That:

• The best clients of facials, manicures, massages, haircuts, and other personal care solutions are the biggest households and senior occupants.
• The heads of households aged between 35 and 64 years, spend 8 to 14% more money than average in this category.
• Couples with no kids at home, almost all of them with grownup children who left home, invest 25% more money than average in the said services. Meanwhile, people who have children of school age or beyond, spend 31 to 37% more money than average.

As Per A Professional Consultants Report About American Beauty Salon:

• Hair coloring is still an important anchor service, which draws in customers for other care services such as cutting, styling, perming, and straightening.
• Hair coloring services increased just 2.6%, mainly due to baby boomers who require gray hair coverage, plus youngsters’ demands for hair color such as blonding, highlights, balayage, baby-lights, shadow roots, and ombrés.
• The growth of pastels, vivids, and vibrant slowed.
• Cutting and hairstyling grew about 2.5% when customers went to salons less frequently.
• Keratin treatment services grew a little bit.
• More people had their hair styled and cut at lower rates in rental salons and family-economy salons.
• Salons that only offer hair blowout services grew solidly at 25%, in location count and revenues.

Beauty Salon Financing - Investing During Change

Hairstyling, cuts, and professional hair coloring are still the factors that drive the revenue growth of beauty salons. Anyhow, there exist pressures in this regard too, as several baby boomers get gray hair naturally, plus almost every millennial is not trying hard to make that decision. Besides, men are turning into a more important factor in salon revenue consideration when social attitudes toward personal care for men change.

With these demographic changes happening, stylists and salon owners are facing charges in the requirements for their services. This is likely to be a big moment for salons and their workers. Social media trend monitoring and investment in employee training are potentially exhausting, but failing to keep up can have fatal consequences. Once, magazines were the source of style inspirations; today’s standard is a computer having AR or VR software programs. The challenge for today’s hairstylists and salon owners is to identify trends and deliver services in line with these to customers.

Training, as well as, spending on new tools will possibly be among the main challenges for beauty salon businesses in the coming decade.

Salon Loans – The Way to Expand Your Salon Business

The salon sector is changing. While the growth outlook may have been on the decline since 2012, change is likely to be coming soon. So, in what way can you expand your beauty salon business? Here, we will explore the areas of growth, projected based on social and demographic changes.

As per the US Bureau of Labor Statistics (BLS), the main market service segments have close to 1 million individuals as workers and solid growth expectations. This is a growing sector. The BLS makes the following observations in this regard.

• There were 656,000 working hairdressers, cosmetologists, and barbers back in 2014, and they are expected to grow by 10% before 2024 ends.
• There were 113,600 active pedicurists and manicurists, and they are also likely to grow by 10% before 2024 ends.
• There were 55,000 skincare specialists in 2014, and there will possibly be 12% more of them by 2024. The growth is specifically expected for the businesses that cater to men.
• There were 168,800 massage therapists six years ago, and their count is likely to go up by 22% before 2024 completes.

Not using possibly toxic substances and having the expertise required to accomplish professional hair colors, will confirm that stylist and colorist services are here to stay. There are some limitations to DIY trends, such as hair color to name one.

Despite the microtrend towards natural gray color for baby boomers, many of them want to color gray locks even today.

Men Enter the Beauty Salon

Hair removal and coloring for men are two rapidly growing parts of this professional service industry. Men are readier to not just act as per the advice of professionals but also buy goods when the service happens at salons. Sports salons and other locations blending the interests of men with styling is a noteworthy trend. Some of the well-known men’s services are skincare, waxing, and hair coloring.

Financing Today’s Beauty Salon

After exploring the data, a prospective investor or owner may want to evaluate certain obvious secular trends as they consider taking a new salon loan/financing an existing salon.

Conventional factors like professional cuts and coloring, keep stabilizing beauty salons. Anyhow, shopping center-based chains and smaller salons are expelled from the market, with customers seeking various specialty services from bigger, diversified salons. Even so, a big part of the market seeks extra value in the personal care offerings of those two forms of salon businesses. People with family members are the most willing to seek value pricing, which puts pressure on salons to use service pricing for each person.

The speed of style changes due partly to social networking websites has forced stylists and salon owners to quickly learn and modify their offerings accordingly. This change has also caused it vital to have access to the internet and media at the salon, to follow and evaluate fashion trends in virtually real-time.

Obtaining Funds for a Beauty Salon Interior Expansion/Renovation

Salon owners may want to think about a décor renovation to make their shops more suitable for client requirements, an expansion to offer more services, or consider both. Think of those examples of families with kids pursuing value-oriented salons and of men turning to sports-themed salons. Beauty salons are more commonly making multi-themed settings to fulfill the tastes of the main client segments.

You should first think about realizing what a lending institution seeks when making a business loan as you seek funds for your salon. Lenders mainly consider the credit profile, including your business’s and your credit history.

Another vital consideration that a lender makes during loan determination, is your capability of paying back the loan. Ask a lending institution for the money for your salon, and they will tell you to demonstrate how you plan on repaying it.

How to Determine Your Capacity to Pay Back Your Salon Loan

A straightforward calculation will aid you in determining this. It is known as the Debt Service Coverage Ratio. A DSCR calculator will aid you in understanding how a lending institution will view your business loan application. Your DSCR essentially determines your capability of repaying the loan. Make the effort to know more about DSCR.

Financing Options to Purchase a New Salon Or Grow An Existing One

SBA Loan

The US Small Business Administration offers a good product to obtain funding for the salon acquisition or expansion purpose. For a business that is not lucrative, remember that it can be tougher to get top-quality financing such as a loan from the US SBA.

Is your to-be-acquired/expanded business not profitable? If the answer is yes, you would have to make a convincing case for why you deserve the loan, as well as show your industry knowledge.

Conventional Bank Loan

If that to-be-purchased business’s DSCR is high, and you are well-experienced in running a salon, then you might be eligible for this loan.

Rollovers as Business Startups

This financial arrangement allows rolling the money from a 401(K) or IRA retirement account into an entity you possess. Unlike drawing your retirement funds, it allows using your business in the form of a tax-deferred asset.

Top Inventory Financing Options

Line Of Credit for Business Causes

The LOC is comparable to a combination of a business-purpose credit card and loan. Similar to a loan for business purposes, an unsecured LOC offers financing that is useful for common business costs. However, the LOC comes without any lump-sum payment; as a business owner, you will only borrow what you require and will pay interest on it.

Merchant Cash Advance (MCA)

The cash provider offers the salon an advance as a one-off amount, instead of installments over a long period. As the salon owner/borrower, you should repay it through a daily percentage or weekly portion of your business’s sales billed with credit cards.

Non-Collateralized Business Loan

It is a form of business loan that requires you to put up no asset as collateral. A lender will issue it only based on your creditworthiness.

Financing an American Real Estate Property Purchase

The most significant choice regarding financing and running your salon, maybe whether to purchase or rent. The business’s success will be based considerably on its location, so it is vital to consider the building and land ownership in everybody’s interest.

Anyhow, leasing the business building is possibly a better option for you as compared to buying. Is it possible to lease it for 5 years or more, with lease renewal options? Is the lease rate below the required monthly payments on the property loan? If the answers to these questions are yes, then leasing would be the best choice of the two options. After all, you could invest the extra, monthly disposable cash again in your salon business for worker training, expansion, or new stock.

Consider the following when choosing between the two options, namely leasing and buying the property for your business.

• Whether the acquisition would make sense finance-wise;
• Whether you can pay for the property; and,
• How your DSCR is

Real Estate Property Financing Options

When you find the acquisition of the best choice for your business, you might want to consider the following options to finance it.

Commercial/Bank Loan

The bank through which you already conduct business transactions is among the best institutions to seek a loan. They may provide the best repayment terms so that you can finance your salon real estate property acquisition without much headache.

SBA’s 504 Loan

There exist SBA loan schemes specialized for those looking to purchase the property where their business building sits. To qualify for this loan, the small entity must occupy 51% of the property at the least and follow federal standards regarding the business size. Besides, to be eligible for it, that business must not have more than $6,000,000 or over 500 employees.

Beauty Salon Expansion Capital

Here are some top financing options for this purpose.

Franchise Loan

In the event of planning to launch a franchised salon, you may first think about choosing this loan before other financial products.

Credit Line

Beauty salon owners should prioritize keeping a LOC, given the speed of change as well as the requirement to possess the latest items. A LOC program offers ready money as the capital.

MCA

As mentioned earlier, the provider offers the salon the advance as a lump-sum, which the business should repay on a daily/monthly basis through the sales percentage. This causes an MCA to be an excellent option for obtaining funds to purchase stock.

When financing the business expansion, remember that an MCA tends to carry greater costs and charges than alternative types of borrowing and loans. This may make an MCA a good product to stock shampoo for future use but give more careful thought when using it for a costlier expansion.

Working Capital (WC)

The key to running a salon successfully is to keep up with customer demand, emerging trends, and seasonal changes. The availability of working capital can be a factor in determining whether your salon will be successful.

Business owners tend to make the mistake of not confirming that they have enough working capital. There will be no better time to get funds as working capital than when your salon business is flourishing. After all, US banks and alternative lenders wish to know whether it is a good risk to lend you money. Never wait up to the time your business desperately requires capital to seek funds. Rather, establish lines of credit as frequently as you require funds and as soon as you can do it.

Top Working Capital Sources for Salons

SBA

The US SBA has many loan schemes that can offer small businesses loans to meet their working capital needs. This means that you can utilize the 504 Loan funding for any purpose of business.

Business Credit Line

This form of credit line must be there in the financing portfolio of all small businesses. Think of it as standby cash, the kind of product you can utilize when required. You will not have to pay interest until using the business credit line. This characteristic makes the LOC a useful financing option for a quick-paced venture such as a beauty salon.

Credit Card for Business Purposes

You can utilize the credit card to make the most of business opportunities. One of the best things about it is that interest charges will not accumulate unless you withdraw from the credit line. Besides, almost every credit card scheme comes with cashback and rewards, so it is possible to accrue advantages while purchasing what you already require.