Securing Salon Equipment Financing If Banks Say No

Article Summary:

• Salon owners need various types of equipment to keep their business running.

• If business owners have poor credit, it can be challenging to qualify for traditional bank loans.

• Salon equipment financing can be a unique financial solution and typically has more flexible requirements.

If you own a salon, you help people look good and feel their best. It can be a rewarding service-based business, but securing financing can be challenging. Traditional bank loans typically require strong credit scores and come with strict underwriting criteria. So, when it's time to upgrade your equipment, like salon chairs and styling stations, it may be tough to qualify.

The good news is that solid alternatives exist, including salon equipment financing — even for business owners who have a lower credit score. Read on to learn how small business owners can take advantage of these flexible financing options to invest in the salon equipment you need to grow.

Why Traditional Banks May Deny Salon Owners

You can have a cash-flow positive, profitable salon business and yet still struggle to qualify for traditional bank financing. One common reason is the business owner's credit history.

Salon professionals may have lower credit scores for a variety of reasons. For example, inconsistent revenue, high operating costs, and reliance on personal credit cards to keep up with expenses may contribute, though everyone's situation is different.

Banks tend to have strict underwriting criteria and heavily rely on credit scores when assessing risk. In addition to credit scores, lenders look at how long you've been in business, revenue patterns, and potential collateral. Depending on your salon business, you may fall short of these requirements despite doing well otherwise.

Salon Equipment Financing May Provide a Solution

If you don't qualify for traditional bank financing, there may be another way that you can get what you need: salon equipment financing. Through this type of financing, not only do you get the equipment you need, but the equipment itself acts as collateral, which can make it more accessible.

Unlike conventional business loans, lenders go beyond a business owner's credit score and consider the value of the equipment you're purchasing.

Because the equipment typically serves as a form of collateral, lenders are generally more flexible. Financing providers usually review your cash flow, operating history, and the shelf life of the equipment.

Salon equipment financing can be used for a wide range of items, including pedicure chairs, skin care or spa equipment, and more. This allows business owners to avoid upfront costs and instead spread out costs over the repayment term. In essence, it's a financial solution that allows businesses to preserve working capital while investing in their long-term growth.

Benefits of Salon Equipment Financing

Salon equipment financing can provide business owners with several benefits, including:

1. Flexible: If you need to purchase massage chairs, manicure tables, or reception desks, salon equipment financing may have more flexible approval criteria. Instead of primarily focusing on credit history, lenders may consider additional risk factors.

2. Built-in collateral: The risk that lenders take on gets reduced when there is an item of value, or collateral, backing the loan. Salon equipment financing comes with built-in collateral, which may improve your approval odds.

3. Protect working capital: Your day-to-day expenses take priority, so you can keep the lights on and pay employees or contractors. Being able to break down costs into manageable monthly payments can be a major benefit.

4. New equipment: Salon equipment financing can help you upgrade what you have and purchase new equipment. If you want to grow and keep your competitive edge, you'll want to stay current to serve your customers.

5. Potential tax benefits: Depending on the type of financing, you may be able to deduct the monthly payments as a qualified business expense. This could help lower your taxable income. Talk with an accountant or professional about potential tax deductions.

6. Establish business credit: If you take on salon equipment financing and stay on top of your monthly payments, it could help establish or potentially improve your business credit profile if the lender reports to credit bureaus.

Types of Salon Equipment Financing

Salon equipment financing is an umbrella term that refers to different solutions available to help purchase new equipment. In general, salon owners can take out an equipment loan or lease. These options are similar in that they help you get equipment for your business. But they differ in some important ways.

1. Equipment loan: An equipment loan provides the upfront capital to purchase the item(s) needed. Instead of paying in full, costs are spread out over the repayment term. In turn, you have more manageable monthly payments. For this convenience, you pay interest on the amount. Once you've made all the payments, you own the equipment outright.

2. Equipment lease: An equipment lease provides access to what you need with more flexibility. Using a lease, you make monthly payments to use the salon equipment needed. Oftentimes, leasing may have lower initial costs as they don't require down payments. Plus, you have more options at the end of the term. Depending on your lease, you could end up renewing the lease, returning the equipment, or even buying it for a small fee.

Both equipment loans and leases can help you purchase what you need. So, whether you're opening a barber shop or hair salon and need shampoo chairs and hooded dryers or opening a beauty salon with a range of services, these options can get you what you need.

Equipment loans may be a solid choice for business owners who want to invest in equipment for the long-term. If you have a business plan and a track record of success, a loan and eventually ownership can make sense.

If you're just starting out, an equipment lease can come with fewer barriers to get started (typically no down payment). Just be aware that if you terminate a lease early, you'll likely get hit with fees.

In both cases, the equipment acts as collateral, which can make chances of approval more accessible relative to traditional bank loans.

What Salon Equipment Financing Lenders Consider

If your credit history is less-than-perfect, you may still qualify for salon equipment financing. Its built-in collateral can give borrowers a competitive advantage. Aside from credit, lenders often look at key factors, including:

• Time in business: Lenders look at your operating history. If you've been in business for a while, that can be an advantage. But if you're a newer salon owner, you may still qualify with a shorter timeframe.

• Cash flow: Whether you take out an equipment loan or lease to get what you need, remember that you'll still be responsible for the monthly payments. Lenders want to see cash flow numbers that show consistent revenue patterns and a strong ability to repay the debt.

• Equipment value: In equipment financing, the equipment is collateral for the loan. If you default on your payments, the lender can rightfully seize the equipment as part of the loan agreement. So, your lender will consider the value of the equipment, its useful life, and potential resale value.

• Industry experience: Salon owners with a long track record in the industry can show staying power and credibility, which ultimately lowers the perceived risk.

These are common factors that lenders consider when reviewing a borrower's eligibility. However, each lender is different and has a unique set of requirements.

How Salon Owners May Improve Chances of Approval

Salon equipment financing is appealing. It helps you purchase equipment and can have fewer roadblocks for approval. Even so, there are some steps that you can take to improve your application and chances of approval.

Start by making sure your financial records are organized and up to date. Have several months of bank statements ready and current profit and loss statements. Additionally, focus on your cash flow and payment history, as well as research lenders and equipment. Doing so can strengthen your application and put you in a good position as a borrower.

Final Thoughts

If you feel locked out of traditional financing because of your credit, salon equipment financing can be a solution. Whether you choose to take out an equipment loan or lease, you can preserve your cash flow and get the necessary upgrades for your business. To get the most competitive terms, research multiple lenders. Compare the interest rates, repayment terms, potential fees, or down payment requirements. Being a well-informed borrower can help you avoid costly surprises, so you can focus on your salon business and serving others.