Barbers and stylists who own their salon need financing for short-term working capital to expand the number of chairs and invest in retail products for added revenue. The best beauty salon loans provide quick access to financing for owners who have been in business for at least one year at low rates.
OnDeck, which sponsored this article, offers a small business line of credit that can help your salon deal with seasonality, unpredictability, and even invest in growth. You may qualify if you have a 600 or higher credit score, at least $100,000 in annual revenue, and have been in business for at least one year. Its online application takes about 10 minutes and you can get funded in as quickly as one business day.
Best Beauty Salon Loans at a Glance
Type of Financing
Salons needing recurring working capital for seasonality or cash flow gaps
Salon owners needing quick growth capital or funding before a busy season
Stylists wanting to cover recurring expenses and startups
Salons needing funding for salon chairs, tools, and other equipment
Salon owners wanting to finance renovations or an expansion to a new location
Beauty salons unable to qualify elsewhere that collect credit card payments
Salon and barbershop owners have a lot of small business loan options, and identifying the right financing can be a chore. We break down all your business loan options in this free webinar to help you find the right financing options and learn how to qualify.
When to Use Beauty Salon Loans
Salon owners must balance their own book of business as a stylist or barber and manage the overall salon business. That’s why they often look for outside working capital to either help them hire other managers to run the salon or hire stylists to take over their book of business.
Common reasons salon owners need capital include:
- Hiring and training new stylists
- Purchasing retail inventory
- Financing equipment
- Purchasing shared product inventory
- Paying utilities and rent
- Salon advertising
A business line of credit is one financing option that can help salon owners with any or all of these needs. OnDeck offers a line of credit for salon financing up to $100,000, and you can qualify with a credit score of at least 600 and $100,000 or more in annual revenue. To apply, you can fill out an online application in about 10 minutes and receive salon funding in as little as one business day.
How We Determined the Best Beauty Salon Loans
Salons need financing to meet the flexible demands of their business. For example, expanding businesses often have to find stylists to fill their chairs, and growth capital can help a salon invest in new employees or equipment. Also, consumers sometimes see salons as a luxury item, and investing in advertising and marketing can drive quality customers into your establishment.
While salon owners can sometimes encounter immediate capital needs, traditional lenders often see the beauty industry as risky, making it hard to get salon financing. Further, traditional loans for beauty salons can take a month or longer to fund. To address this, we looked at alternative online lenders as a great option for barbers and stylists who own their own salon.
When deciding on the best beauty salon financing, we considered factors including:
- Flexibility: Whether the loan has a specific purpose, like equipment financing, or offers flexible funding, like a line of credit.
- Funding speed: The time a salon owner needs to apply and how quickly the funds are available for use, ranging from one day for alternative loans to three months for SBA loans.
- Costs: The interest rates and fees associated with financing. Rates are lower for beauty salon loans backed by collateral and unsecured options average from 30% to 50%.
- Maximum loan amounts: The amount of capital salon owners can qualify for, ranging from maximum limits of $100,000 to as high as $5 million.
- Repayment terms: The frequency with which you must make payments and the time salon owners have to repay the loan. You typically must make payments on a weekly or monthly basis over a term ranging from six months to 10 years.
- Qualification requirements: The personal credit score, time in business, and annual revenue requirements business owners must meet to qualify. Online lenders have lower requirements than traditional financing options like SBA loans, which are harder to qualify for.
One of the main reasons a salon owner looks for financing is to expand and invest in growth. Two great ways to do so are to bring in new stylists (thus increasing your capacity) or to increase retail sales and add new revenue streams. Therefore, we recommend a business line of credit as the best source of salon financing.
Business Line of Credit for Salons
A business line of credit (LOC) isn’t only a loan, but is also a pre-approved amount of money you can draw from repeatedly, similar to a credit card. You’ll only pay interest on the amount of credit you access, so it can be a more affordable solution than other beauty salon loans if you need financing in small spurts.
A business line of credit is ideal for most funding needs, allowing you to get access to salon financing on a recurring basis when a cash flow gap occurs. Also, you can use it to finance your salon growth as a short-term working capital solution.
Business Line of Credit Rates & Fees
Business line of credit rates and fees include:
- Expected average APR: 14% to 40%
- Prepayment penalty: None
The rates for a business line of credit are higher than an SBA loan, but have a smaller average range than term loans for beauty salons. You can save money by borrowing the exact amount of capital needed, rather than getting a lump sum and paying interest on money that’s unused.
Business Line of Credit Terms
Business line of credit terms include:
- Loan amount: Up to $100,000
- Repayment term: Up to 12 months
- Repayment cycle: Weekly or monthly
- Time to funding: One to three days
A line of credit is revolving, allowing your business to borrow funds again once you repay the balance. If your salon qualifies for $10,000 in financing, your business could borrow much more over several draws. That’s why a line of credit offers beauty salons a smaller credit limit than most other financing options.
Business Line of Credit Qualifications
Business line of credit qualifications include:
- Personal credit score: At least 600
- Time in business: At least one year
- Annual business revenue: At least $100,000
A low overall annual revenue requirement for a business line of credit is a good fit for smaller salons. These qualification requirements are similar to a term loan and sometimes your business may qualify for both. Getting a line of credit from an alternative lender can also be simpler than qualifying at a bank because of these lower minimum requirements.
What a Business Line of Credit Is Missing
A business line of credit is great for salons looking to draw from funds on a recurring basis as cash flow gaps occur. However, it has a low maximum loan limit in relation to other beauty salon loans. For example, if you know you’re entering a busy season and have to ramp up your retail inventory with a fixed amount, a term beauty loan might be better.
Where to Find a Small Business Line of Credit
OnDeck offers a line of credit up to $100,000 with starting rates of 13.99% for beauty salons. You can complete an online application in minutes and receive an approval decision the same day. Once you accept a funding offer, your beauty salon business can have access to the capital it needs the next day.
Short-term Beauty Salon Loans
Lenders advance a short-term beauty salon loan as a lump sum with fixed weekly amortized repayments of principal plus interest. These loans typically have higher interest rates than a line of credit and repayment terms of up to three years. You will typically pay off a short-term beauty salon loan within one year, but you must reapply every time you need additional funds.
Short-term beauty salon loans are a good choice to fund rapid growth and grow a new book of business, or to spend on marketing your salon to grow your list of clients. For example, you can sponsor a local fashion show for a fixed dollar amount using a term loan. If the increase in business is greater than the cost of fixed monthly payments, this is a good investment.
Short-term Beauty Salon Loan Interest Rates & Fees
Short-term loan rates and fees include:
- Average expected APR: 10% to 50%
- Prepayment penalty: None
- Origination fee: 0% to 5%
With a short-term loan, you’ll rarely save money by paying it off early. When you get financed, you’ll have to pay a certain dollar amount based on interest charges for your full term. So, even if you repay the loan in three months, you’ll still be paying the same amount as you would if it took the full term to pay off the loan.
Short-term Loan Terms
Short-term loan terms include:
- Loan amount: Up to $500,000
- Repayment term: Three to 36 months
- Repayment cycle: Weekly
- Time to funding: One to three days
Short-term beauty salon loans offer larger loan amounts and longer repayment options than a line of credit. This makes them a great option for larger projects like renovations or furnishing a new location. A term loan can also provide quick salon funding through an online lender and requires weekly payments, like a line of credit.
Short-term Loan Qualifications
Short-term loan qualifications include:
- Personal credit score: At least 600
- Time in business: At least one year
- Annual business revenue: At least $100,000
The minimum requirements for a term loan are the same as a line of credit. When deciding which is best for your business, it’s worth considering whether you need the capital immediately. A term loan will advance the entire amount and your lender calculates the interest charges based on the advance, whereas a line of credit grants you a limit and interest is only charged for what you borrow.
What a Short-term Beauty Salon Loan Is Missing
Short-term loans are great to help you grow your salon by providing a large lump sum of cash to spend on your business. However, short-term beauty salon loans require you to apply every time you need capital. Many salons can compare two top LOC providers for a line of credit to meet these recurring expenses.
Where to Find a Short-term Loan
OnDeck offers a short-term beauty salon loan up to $500,000 with starting rates as low as 9.99%, comparable to traditional lenders and SBA loans. The application process takes a few minutes and you can complete it online. Once approved, your business can receive salon funding from OnDeck in as little as one business day.
Business Credit Cards for Beauty Salons
Business credit cards work like a business line of credit, but they’re easier to qualify for and carry a much smaller line of salon financing. A business credit card is something that every stylist should have, and it’s especially useful for startups and new businesses. You’ll typically get approved for less than $30,000 in financing and can qualify for cash back or rewards points to use on purchases within your business.
A business credit card is best used to make small working capital purchases throughout your salon’s day-to-day operations. For example, all salons have operating costs like utilities and beauty salon insurance, and you can set up automatic payments on your business credit card and earn rewards. Further, you can use it to make lump sum purchases thanks to 30-day repayment terms helping you float expenses.
For example, if you put $1,000 of retail shampoo on your card, you can receive cash back, which reduces your total costs. If you sell through that product within 30 days, you can repay the amount without incurring interest. Plus, if this happens during your special introductory offer phase, you could have a 0% interest on the purchases, which gives you even longer to sell your retail products to customers and recoup the money.
Business Credit Card Interest Rates & Fees
Business credit card rates and fees include:
- Interest rate: 15% to 29%
- Introductory rate: 0% for up to 18 months
- Annual fee: Up to $350
The costs of borrowing from a business credit card and a line of credit are similar. The major exception is that some credit cards charge an annual fee. This makes them more expensive if left unused and kept as a reserve. However, unlike a business line of credit, some credit cards have low introductory offers, and credit cards charge no interest on balances outstanding less than 30 days.
Business Credit Card Terms
Business credit card terms include:
- Loan amounts: Up to $100,000 but typically less than $30,000 for most businesses
- Repayment terms: 30 days interest-free
- Time to funding: Up to two weeks (the time to receive your card)
- Initial rewards: Introductory APR of 0% for seven to 18 months, and a cash bonus (or points bonus) if you spend a certain amount within the first two to six months
- Ongoing rewards: Cash back or rewards points
For beauty salon owners, a cash back credit card might be the best option thanks to its initial and ongoing rewards. Many of the cards that offer points are beneficial to businesses that conduct a lot of travel or purchase office equipment frequently. Using a business credit card that offers rewards helps salon owners stretch every dollar further, since you can earn rewards for routine expenses like utilities.
Business Credit Card Qualifications
Business credit card qualifications include:
- Credit score: At least 680 for the best offers
Business credit cards don’t set a minimum revenue or time in business requirements, making them easier to qualify for than short-term beauty salon loans and lines of credit. However, salon owners with higher credit scores can qualify for better rates and rewards programs. Your business revenue will impact the amount you qualify for and, as your business grows, you can receive credit limit increases.
What a Business Credit Card Is Missing
Business credit cards are great for salon owners wanting a small line of credit to help pay for recurring expenses, but they don’t offer large financing amounts. The most you’ll likely qualify for as a salon owner is less than $30,000. Larger credit lines are available and if your business needs to purchase equipment, then equipment financing may be a less expensive alternative.
Where to Find Business Credit Cards
Banks, credit unions, and credit card companies offer business credit cards. The best small business credit cards offer rewards, low starting rates, and a simple online application for beauty salon owners. Individual stylists and practitioners can also get a personal credit card for business, which can help you grow the number of clients you serve and stretch your dollar further.
Salon Equipment Financing
Salon owners need equipment like chairs, spa units, and furniture for client waiting areas. Although you can purchase many of these with a term loan, specialized equipment is often expensive and you need to finance it over a period longer than three years. The most affordable financing solution, in this case, is equipment financing.
Equipment financing has lower starting rates than other beauty salon loans because the equipment acts as collateral for the loan. This reduces the risk for the lender and allows it to offer your salon business financing with lower rates and longer repayment terms than online lenders.
Salon Equipment Financing Rates & Fees
Equipment financing costs include:
- Interest rates: 6% to 9%
- Fees: Varies by lender, but there is typically an origination fee
Salon equipment financing offers business owners the lowest overall rates we reviewed. However, fees differ among lenders and you can only use the loan to purchase equipment. This means you can’t pay any taxes, maintenance costs, or other expenses like increased payroll or utilities with proceeds from equipment financing.
Salon Equipment Financing Terms
Equipment financing terms include:
- Financing amount: $10,000 to $500,000 (up to 95% of equipment costs)
- Repayment term: Two to seven years, based on the expected useful life of the equipment
- Payment frequency: Monthly
- Funding speed: Two to five business days
Salon equipment financing offers the same funding amount as a short-term beauty salon loan. However, it typically covers up to 95% of the equipment cost, leaving your business with the rest of the bill. The longer repayment terms help reduce the size of monthly payments, which neither term loans nor lines of credit offer.
Salon Equipment Financing Qualifications
Equipment financing qualifications include:
- Credit score: At least 600
- Collateral: Equipment being financed
- Down payment: At least 5%
- Other requirements: No bankruptcies, foreclosures, or repossessions on your credit report
The minimum credit score requirement for salon equipment financing is the same as a term loan and a line of credit. However, your business will need to provide a down payment of at least 5% and the equipment will act as collateral for the loan. This can make it less accessible for smaller businesses that don’t have enough for a down payment but need to upgrade equipment quickly.
What Salon Equipment Financing Is Missing
Equipment financing is the least expensive way to finance the specialized equipment your business needs to grow. However, it requires a down payment from the business and doesn’t cover other working capital expenses like increased payroll, utilities, and taxes. For a more flexible financing option with the same potential loan amount, consider getting a short-term beauty salon loan instead.
Where to Find Salon Equipment Financing
Specialized lenders and equipment retailers often offer equipment financing. Sometimes getting an equipment loan can have tax benefits for your business, which reduces your overall costs. Leasing equipment is also an option for businesses that don’t have sufficient down payment for a loan.
SBA Loans for Beauty Salons
SBA loans are partially guaranteed by the Small Business Administration (SBA) that salon owners use to purchase commercial real estate and for working capital needs. SBA loans offer low-interest rates, long repayment terms, and are difficult to qualify for, making them a tough option for salon owners. You must spend a lot of time on the application process and funding take 30 to 90 days.
There are many types of SBA loans to choose from. Overall, they’re used by salons to finance the purchase of a commercial real estate space to run and grow their business. While hard to qualify for, an SBA loan might help you get access to a physical location in a prime area. SBA loans are also a popular startup funding option for individual practitioners wanting to open a salon.
SBA Loan Interest Rates & Fees
SBA loan rates and fees for beauty salons include:
- Interest rate: 8% to 11%
- Prepayment penalty: None
- Origination fee: 0.5% to 3.5%
- Loan packaging fee: $2,000 to $4,000
- SBA guarantee fee: 2% to 3.5%
An SBA loan offers low rates on flexible financing, making it a less expensive alternative to short-term beauty salon loans. However, there are significant upfront costs, including an origination fee, loan packaging fees, and an SBA guarantee fee. Also, keep in mind that while short-term loans typically last up to a year, SBA loans can last up to 10 years, resulting in a larger overall interest cost.
SBA Loan Terms
Terms of SBA loans for beauty salons include:
- Loan amount: Up to $5 million
- Repayment terms: Up to 10 years (25 years for real estate)
- Repayment cycle: Monthly
- Time to funding: At least 30 to 90 days
The reasons SBA loans are a great way to finance major expansions, business acquisitions, and office remodeling efforts are its long repayment terms and large potential loan amounts. SBA loans offer funding up to $5 million for beauty salons with repayment terms up to 10 years for working capital.
SBA Loan Qualifications
Qualifications for SBA loans for beauty salons include:
- Minimum credit score: 680
- Collateral: Typically required
- Down payment: At least 10% to 20%
- Time in business: No restrictions
The reason why it’s hard to qualify for an SBA loan as a salon owner is that while the SBA guarantees the loan, it also requires approved lenders to maintain their qualification standards. Many lenders perceive the beauty industry to be risky due to revenue volatility. Applying for an SBA loan is also a drawn-out process, requiring several visits to the bank to answer follow-up questions and deliver paperwork.
What an SBA Loan Is Missing
SBA loans are great for growing a business or buying out a competitor, but they’re difficult to qualify for and will take you away from your salon operations as you go through the application process. These loans also take a long time to fund, whereas a short-term beauty salon loan can get you quicker funding.
Where to Find SBA Loans
Traditional banks and other traditional lenders offer SBA loans for beauty salons. There are many lenders to choose from, with the top 100 SBA lenders providing $48 million or more in loans each in 2018. The application process can be long, regardless of the lender you work with, so it’s worth investing some time to find the right SBA lender for your business before applying.
Merchant Cash Advance for Beauty Salons
A merchant cash advance (MCA) is a business loan based on your credit card receivables. Beauty salons often already accept credit cards and could access financing this way. The major benefit is that you can access a large amount of capital with low minimum credit score requirements. However, it is expensive and can have a negative effect on your cash flow.
Merchant Cash Advance Rates & Fees
Merchant cash advance costs include:
- Expected average APR: 50% to 120%
- Factor rate: 1.1 to 1.5 times the loan amount
- Holdback percentage: 8% to 30%
- Prepayment penalty: None
A merchant cash advance has the highest expected average APR among beauty salon loans. There is also a holdback percentage for payments, which your lender receives daily when you batch credit card receivables. Lenders use this holdback percentage to pay down the loan, which can reduce your payments if your business has a slow week.
Merchant Cash Advance Terms
Merchant cash advance terms include:
- Loan amount: Up to $500,000
- Repayment term: Up to 18 months
- Repayment cycle: Daily (between 8% and 30% of daily credit and debit sales)
- Time to funding: Two to five days
Your personal care business can qualify for the same amount of funding with a merchant cash advance as it can with a term loan. Although the maximum repayment term is 18 months, it rarely takes that long and your business has little control over when it repays the loan. Funding is also quick and requires that you submit your credit card receivables for the last few months to qualify.
Merchant Cash Advance Qualifications
Merchant cash advance qualifications include:
- Personal credit score: No minimum requirement to at least 500
- Credit card receivables history: At least two years
- Annual credit card sales: At least $50,000
The minimum requirements to qualify for a merchant cash advance are the lowest we evaluated, making it an accessible option for many business owners. This is especially true if your personal credit score is preventing you from qualifying because some MCA providers offer funding with no minimum personal credit score requirement.
What a Merchant Cash Advance Is Missing
A merchant cash advance can offer a financing alternative for businesses unable to qualify elsewhere due to low personal credit scores. However, it’s an expensive option and requires daily payments deducted directly from credit card receivables. We only recommend using this option after you have exhausted all other financing sources.
Where to Find a Merchant Cash Advance
Alternative lenders and credit card processing companies provide merchant cash advances. The best place to look for one is through the company that you process your credit card payments. The best MCA providers offer low rates and quick funding times, but most of them will be more expensive than other financing options.
Reasons Beauty Salons May Be Denied
Beauty salon owners often find it difficult to get the working capital financing they need from traditional banks and lenders. Many consider the industry to be unpredictable and too risky to provide a large amount of capital unless it’s secured by real estate or other collateral. It can even be difficult to get approved by an alternative lender if you’re not prepared to overcome potential obstacles.
The three main obstacles that cause stylists to get denied for beauty salon loans are:
1. Bad Credit or Lack of Credit History
Having bad personal credit or not enough credit history is a difficult hurdle to overcome with most lenders. When your business is in the beauty industry, it’s even more difficult because of the risky nature of your business. Alternative lenders can approve borrowers with credit scores as low as 600, but the most affordable rates will only go to prime borrowers.
According to Ty Kiisel, Editor at OnDeck:
“If you weren’t looking for opportunities to build business credit early on in your business’ history, it could hurt you later. Establishing 30- or 60-day repayment terms with suppliers is a good way to start building business credit (provided they report your good credit history to the credit bureaus). Applying for a business credit card and using it rather than your personal credit card to pay business expenses are both ways to start establishing business credit in the first year or two of business that will demonstrate to a lender that you’re creditworthy.”
While your business credit score won’t necessarily be a factor in approving your loan, it’s a good opportunity to show a potential lender how your business deals with debt. This can improve your chances of getting approved or increase the amount of financing you are approved for.
2. Not Showing Proof of Increasing Revenue
One of the biggest problems salons face is keeping clients long term. Being able to show a strong book of business that provides a consistent flow of repeat customers is a good way to get a potential lender comfortable with your financials. Because of the inconsistent nature of the salon industry, lenders want to understand whether your revenue is reliable.
To set yourself up for the best chance at being approved, you must show that your revenue isn’t only consistent but that it’s been increasing for at least three to six months. It’s best to apply for a loan when you hit six months of consistent revenue growth. This shows a lender you’re trending in the right direction and your efforts are working.
3. Too Much Competition
Beauty salons have a lot of competition, which is one reason many traditional lenders find the industry to be so risky. You must prove that you can compete with larger salons and that you’re able to keep your chairs filled with clients flowing into the business.
For example, if selling retail products like shampoos and conditioners is important, you must show you can compete with the cheaper retail options that surround you. If your business is struggling to get clients because of the competition, then it might be time to think about changing locations. Your salon location is important to how many walk-ins you get and how many customers stay with your business for the long term.
Getting approved for beauty salon loans isn’t easy, but it’s doable if you prepare and know where to find lenders who can fund you quickly. You’ll want to find short-term financing for your salon that you can use on a recurring basis so you have the funds to deal with working capital needs as they come up.
OnDeck offers a business line of credit up to $100,000 for salons with $100,000 or more in annual revenue, a 600 or higher credit score, and at least one year in business. Its online application takes about 10 minutes and if approved, it can fund you in as quickly as one business day.