Of course, the essential part of financing is actually obtaining your capital. The good news is business owners have no shortage of options to choose from, although each comes with benefits and drawbacks.
Owners should never overlook personal savings or existing revenue as a source of capital. If your established salon already earns profits, saving up for an expansion is perfectly reasonable. On the other hand, if you run a sole proprietorship and can keep costs low, it’s possible to set aside seed and startup funds.
Just remember that drawing from personal savings doesn’t mean all capital must come from these sources. Even having a portion of your funding preallocated takes the risk off of lenders and investors — making it far more likely they will consider helping you.
Traditional loans and credit lines
If you are a sole owner, sometimes the most straightforward choice is a traditional loan. Most businesses use this option for financing, but they tend to be highly regimented — banks have very specific guidelines for repayment and major consequences for failing to keep up.
If most of your capital already comes from savings, consider a traditional line of credit for businesses. The terms for usage and repayment tend to be more flexible, and owners can draw on these funds when necessary instead of obtaining a lump sum in advance.
Small business and microloans
Depending on your enterprise’s size, you may qualify as a small business and gain certain financing benefits. For example, the Small Business Association can guarantee low-interest loans to qualifying salons from partner banks. Alternatively, microloan programs can provide a small capital injection that meets specific needs and is relatively easier to repay.
Borrowing from friends or family
Compared to other financing options, loans from friends or family members may feel like the safest option — you can usually be flexible with interest and repayment terms. In practice, however, they can put an immense strain on personal relationships. As a salon owner, try to keep the arrangement professional by setting clear expectations for repayment in writing.
Finally, salons may turn to private equity options to secure capital for ownership shares. In most cases, these come from financial capital firms actively seeking high-return businesses and initiatives. When considering firms, the best option is usually to apply with organizations that support local industry. Alternatively, if you have an innovative idea for your salon — perhaps an invention or unique technique — you may get the attention of a more prominent firm.
The main drawback of capital firms, outside of losing ownership, is how long it takes to secure an appointment. Even a successful application takes months to arrange, requiring multiple meetings, presentations, and negotiations. Capital firms are overwhelmed with requests from potential businesses, so prepare for a long wait unless you have a personal connection with an investor.
Alternatively, owners can benefit from solo or “angel” investors they work with one-on-one. Meeting these rare individuals may require some hustle, usually in the form of networking or a professional connection who arranges warm introductions. If you can strike a friendly relationship with an angel investor, you might resolve all your capital worries with a single meeting.