The salon industry is ever evolving, and seasoned stylists and professionals always have their finger on the pulse of current styles, trends and favored retail products of the season. However, staying ahead of what’s current in the small business lending landscape is an entirely different task, and one that is often viewed as complex. At first glance, the world of financing can often seem challenging. But armed with the right knowledge, going about securing the financing you need to take your salon to the next level of growth can be relatively hassle-free. Consider the outline below to be your tour guide into the world of small businesses loans. By spending the next few minutes reading, you will gain a better understanding of what your financing options are, and how to best tackle your next project.

As a salon owner, you know how important it is to take advantage of opportunities that come your way. Purchasing bulk inventory at a huge discount from a vendor (experts say retail and professional inventory is the second largest expense for salons), expanding into the space next door to revamp your salon atmosphere, or even taking on an extra hair washer to your boost customer service are all ways grow and develop your business. There are also those times when your computer system or plumbing goes haywire and your business is severely impacted overnight. Whether your business finds itself facing one of these great opportunities or unfortunate obstacles, having cash on hand to remedy the situation is essential to keeping your business moving forward.

In these situations, time is of the essence. Accessing the cash you need to take advantage of both the opportunities and obstacles that pop up suddenly can be difficult. Many salon owners typically keep enough capital on hand to pay a regular cycle of bills, payroll, inventory and rent, etc. However, this can you leave you in a bind when the unexpected arises.

Knowledge is Power

Without knowing what you are looking for or what is required, searching for financing can be a very time consuming process (which as a salon owner, is something you have very little of). However, understanding where you stand credit wise (both for your business and personally) and what your borrowing options are can put you ahead of the curve. Knowing the ins and outs of the small business financing landscape is key. For example, many business owners aren’t aware that a bank won’t typically make a loan if your personal credit score isn’t above a certain threshold (roughly of 680). However, you aren’t completely disqualified from all forms of financing should you not meet that criteria. There are other options available to you – keep reading to see if what works best for your salon’s particular needs.

 Below we’ve outlined the different financing options available to the industry.

• Bank Financing: If you’re looking to spearhead a full end-to-end renovation, such as the opening of a sister location in a neighboring town, then a traditional long term loan is your best fit.  In addition to assembling the items below, the approval process for a traditional bank loan takes a significant amount of time – often anywhere from three to six months.

1. Complete financial records (balance sheet, cash flow income statement)

2. Business plan and pro forma financial statements

3. Complete tax forms for household and business dating back two to three years

4. Very consistent positive cash flow and other necessary diligence

5. And finally, time – long term loans often take months (and delays often come from getting your hands on the right information).

 Examples: Bank Loans, SBA Loans

• Short term small business loans: Here we mean real loans -- not merchant cash advances – that enable you to extend payments over 6 - 18 months at total costs that are similar to long term financing.  These loans are for shorter term needs that you don’t want to be paying off for years – for example investing in training your staff on a new keratin treatment, upgrading to a new inventory management system, launching a marketing campaign or simply extra short term working capital for your business.  Ranging $5,000 to $150,000, this option can typically be funded in as fast as 7 business days. The benefits are threefold: 1) it’s based on your business performance and not just your personal credit score, 2) it requires information that is readily available from your electronic records (bank account, credit card transactions, tax etc.), and 3) the term is designed to allow you to spread out the payment, but also have it paid down before your next opportunity surfaces (you don’t want debt stacking up on your business).

Example: On Deck 

• Using a personal credit card or assets: The upside: a line of credit or using a personal credit card is fast and easy. The downside: 1) if you’ve already drawn on your personal credit to build up your salon, your score may have been impacted (this is not a reflection of you as a business owner, but rather of the system), and 2) loan programs based on personal credit are designed for household use. So, while your may require $15,000 to upgrade your computer system to include an integrated POS system and top of the line appointment scheduling program, you might only receive a $5,000 line of credit.  You could borrow against your home; however, this is a difficult and time consuming option that poses potential risk to your household.

Examples: Credit cards, Home Equity

For additional information on your lending options, you can also check out On Deck’s website (www.ondeckcapital.com) which has free tools to gain a more in depth perspective on your lending options. In just five minutes, salon owners can get customized reports based on your businesses’ financial health which details exactly how lenders view your business, and what lending options are right for you based on the information you have provided. On Deck also tell you what you can do to help improve your standing for each of the lending options.

When tackling your next project – or urgent situation – remember preparation is half the battle. Knowing exactly where you stand credit-wise, as well as what your financing options are, will help your salon through its next transition.

About the author: Mitch Jacobs is the founder of On Deck Capital, a company which provides alternative loan and financing options to small businesses across various industries.