Beauty Salon Funding: The Essential Guide to Beauty Salon Loans

Beauty salons provide esthetic services like hair cuts and styling, manicures and pedicures, facials and skin treatments, waxing and other forms of hair removal, and makeup applications. In addition to selling beauty supplies directly to customers, some beauty salons also offer spa-like treatments, including:

• Tanning
• Massages
• Aromatherapy
• Acupuncture
• Hair cutting, coloring, and styling
• Microblading
• Botox and fillers
• Tattooing and/or piercing

The global beauty salon market share was valued at roughly USD $144.48 billion in 2019, and is expected to grow to around USD$217.25B by 2026, with a compound annual growth rate of approximately 6%. This industry growth presents salon owners with a number of opportunities to expand and strengthen their business.

Though the personal care services industry (which includes barbershops and beauty and nail salons) suffered as a result of the COVID-19 pandemic, many salons quickly reopened when restrictions were lifted and new safety measures were introduced. Today, the beauty salon industry is set for a strong rebound. According to a 2022 article published by the Bureau of Labor Statistics (BLS), “when excluding the recovery of jobs lost during the pandemic, the industry is projected to grow 8.1% from 2020 to 2030.” That’s nearly five times faster than the average 1.7% growth for total employment.

What’s behind the fast growth? According to BLS, “the primary long-term factors driving employment growth in the personal care services industry are the general increase in demand for grooming services, a growing customer base, and the introduction of new services.”

As restrictions ease and consumers return to their pre-pandemic behaviors, beauty salon owners will face an urgent need to fill staff shortages so they can continue to service their ever-growing clientele. Beauty salon loans can help bridge gaps in cash flow and provide the financing you need to invest in new equipment, training for employees, and innovation that will help reduce costs, increase efficiency, and improve profit margins.

Multiple types of funding are available to help beauty salons overcome challenges and continue to grow. Long- and short-term funding is available, as well as secured and unsecured loans, including:

1. SBA beauty salon business loans
2. Bank loans for beauty salons
3. Alternative funding
4. Lines of credit
5. Equipment financing

Let’s take a closer look at these options:

The Small Business Administration (SBA) doesn’t directly provide beauty salon loans—instead, funding is approved and disbursed by partnering commercial lenders like banks or credit unions, and is guaranteed up to 85% by the SBA. This reduces the risk to the lender and, in theory, encourages them to grant more loans to beauty salons.

SBA beauty salon loans have the lowest rates and longest terms because the risk to the lender is lower. However, SBA loans have the most rigorous application process, with the strictest eligibility and most extensive documentation requirements. Some estimates suggest that it can take up to 30 hours to compile all the information you need, and it can take weeks or months to get a decision from your lender with no guarantee of approval. Most applicants are rejected, especially if they have no collateral, a history of unstable cash flow, are seeking short-term funding, or are operating in a higher-risk industry such as personal care services.

SBA loans are typically term loans. Multiple types of SBA funding are available—here are two of the most popular:

• 7(a) Guaranteed Loans: 7(a) loans are the most popular SBA beauty salon business loans. Funding up to $5M is available with the longest repayment terms and lowest rates and no restrictions on how funds are used. Collateral is often required, but Express loans are available with a 36-hour turnaround and no collateral requirements for loans under $25,000.
• 504 Local Development Company Loans: These loans are long-term, fixed-rate loans that are often used to purchase real estate. This funding is provided by Certified Development Companies through commercial lending institutions, and requires the borrowing business to use their financing to create or retain jobs, or to uphold other public policy goals such as rural development, revitalizing a business district, or supporting minority-owned businesses.
• Microloans: Available to a maximum amount of $50,000 with a maximum repayment term of 6 years, microloans can be used for working capital, inventory or supplies, furniture or fixtures, or machinery or equipment, and are available through select non-profit, community-based organizations.

Regardless of which type of SBA beauty salon loan works best for you, the application process for SBA funding is more intensive than any other lender with the strictest approval requirements. It can take weeks or months to get a decision and most applicants are rejected, especially those with low credit, seasonal businesses, businesses with a history of unstable cash flow, or those seeking short-term financing or smaller loan amounts.

Beauty salon owners may also be able to access the funding they need through commercial lenders like banks or credit unions.

Most often, bank loans for beauty salons are term loans that are repaid over a set period of time with fixed or variable interest rates. Terms and rates are typically competitive, but may not be as low as the SBA since the loan is not guaranteed, and will depend on the size of the loan and your credit history. Collateral may also be required.

Commercial lenders often have strict approval requirements, but they may not be quite as strict as the SBA, especially if you have an existing relationship with your lender. Banks tend to prefer granting loans for larger amounts or loans to large businesses with collateral, which means that beauty salons and other higher-risk industries with unstable cash flow may find it tough to get the funding they need from these sources. Similar to the SBA, applications can take weeks or months to approve, and most applicants are rejected.

Alternative funding from direct online lenders like Greenbox Capital® emerged from the 2008 recession in response to a greater need for accessible small business funding. Loans from these lenders are typically easier to acquire than bank or SBA loans, with flexible approval requirements that place less emphasis on your credit score, fewer documentation requirements, and faster turnaround—sometimes in as little as one business day. Collateral is also typically not required.

Because approval requirements are more flexible, rates may be higher than other types of beauty salon loans. Repayment terms are often daily or weekly, depending on the type of alternative funding you receive.

Multiple types of funding are available from these lenders, including more traditional forms of funding like lines of credit and real estate collateral loans, as well as innovative non-loan forms of financing like merchant cash advances and invoice factoring.

Lines of credit are similar to business credit cards, but with longer terms and lower rates. They are one of the most flexible forms of beauty salon business loans, allowing salon owners to draw and repay from the line at any time.

There are no restrictions on how line of credit funds can be used, and you’ll only ever pay interest on the amount borrowed. This makes lines of credit ideal for covering unexpected expenses, financing occasional large purchases of inventory or equipment, or managing other major expenses that don’t require a larger loan but can still strain your cash flow.

Equipment financing is designed specifically to finance the purchase of new equipment, such as hair wash basins, barber station mats, stylist aprons, rolling carts, massage tables, hydraulic reclining chairs, hand towels, as well as tools like scissors, shears, and razors, and more.

Lenders will typically cover 80-100% of the cost of the new equipment and the equipment will serve as collateral to secure the loan, which may result in lower rates. These loans are often repaid in monthly installments, with a term length that corresponds to the length of time your lender expects the equipment will last.

The best beauty salon loan depends on your goals. Your funding, including the amount you borrow and your repayment terms, should always be used to serve a specific purpose that aligns with your business goals, such as renovating your salon to add more bays, hiring more stylists, or investing in new tools and technology so you can offer more services.

For short-term funding, non-loan forms of financing like merchant cash advances can provide a fast infusion of working capital. This type of funding can be used to hire staff, add new services, purchase inventory or technology, fill in cash flow gaps, or market your beauty salon to new customers.

For long-term funding, SBA and bank loans are the best option. SBA beauty salon loans offer the best rates but are the most difficult to acquire. Bank loans will offer similar rates and terms and may be easier to acquire if you already have an existing relationship with a lender. However, both SBA and bank loans can be tough for beauty salons to access due to perceived risk and industry volatility. Some alternative lenders also offer long-term funding options with easier approval requirements, such as small business loans and collateral business loans, but rates may be higher.

For fast funding, alternative lenders are always your best bet for a beauty salon loan. These lenders can approve and deposit funds in as little as 24 hours, while the SBA and banks can take months to assess an application with no guarantee of approval.

As the beauty supply market shifts due to client demand, staffing shortages, and changing personal care preferences, beauty salon owners will face a number of opportunities to grow, such as:

• Improving salon space: Beauty salon loans can provide the funds you need to renovate your existing space or expand to a larger space, or install better equipment and technology so you can offer more extensive services.
• Hiring staff: Hiring additional staff can help you service more customers, whether you take on more stylists or hire massage therapists, estheticians, nail technicians, or support staff so you can focus on customer service instead of paperwork. Beauty salon loans can provide the funds you need to hire and train new employees, or even develop internship or apprenticeship programs with local colleges to create a hiring funnel for new talent.
• Adding new services: Use beauty salon loans to hire technicians who can offer new services, or to invest in education for your existing techs so you can offer new services your customers are looking for. Loans for beauty salons can also be used to develop and offer new at-home service options, such as home hair coloring kits, home manicure kits, and more.
• Advertising: Whether you opt for online advertising, developing partnerships with personal care service providers or other local businesses, sponsoring local events, or whatever strategy makes sense for your salon and your community, beauty salon loans can supply the funding you need to reach new customers online and through traditional media.
• New technology: New technology can help streamline beauty salon operations like invoicing, managing inventory, handling vendors, and setting appointments, while also reducing your reliance on outdated paper records. Automating simple tasks and streamlining paperwork helps ensure that your staff can work as efficiently as possible so you can service more clients and earn more revenue. Beauty salon loans can provide the funding you need to invest in these technologies without straining your cash flow.
• Update your website: Use beauty salon funding to build a new website or update your existing one to better suit the changing needs of customers. Adding options to schedule appointments online, especially for routine cuts and styles, mani/pedis, or massages, or otherwise make the salon experience easier for customers can help set you apart from your competitors so you can earn more business.
• Purchase inventory: Selling products and at-home treatments can create a new revenue stream for your beauty salon. Beauty salon loans can provide the funding you need to purchase inventory, as well as invest in point-of-sale and inventory management software, or even ecommerce functionality for your website so you can sell products online.
• Digital consultations: Use beauty salon loans to create and host online seminars such as product showcases, tutorials, individual consultations, and other events. Engaging with your audience online can help you reach new customers, improve sales of merchandise, and even schedule more appointments.
• Men’s beauty: Skincare and makeup for men is a fast-growing trend—the market for men’s skincare products was worth $12.34 billion in 2021 and is forecasted to grow to $18.92 billion by 2027. Beauty salon loans can be used to invest in new techniques and products designed for men, as well as to advertise to male audiences to bring in new clientele.

Beauty salon loans can also help shop owners overcome the unique challenges of their field, including:

• Staff training: Beauty salon loans can cover tuition costs so you can provide specific salon training for every staff member. Staff who receive personal development opportunities tend to be more loyal to their salon because they feel valued and see commitment from their employers.
• Customer loyalty: Maintaining loyal customers when competing with other beauty salons is one of the most commonly reported challenges for beauty salon owners. Beauty salon business loans can help you meet this challenge by providing the funding you need to advertise your salon and reach new customers, purchase new equipment and technology to offer a higher caliber of services, or develop partnerships with other local businesses such as nail salons, acupuncture, and massage therapy clinics.
• Cost of equipment and tools: Day-to-day equipment such as gloves, aprons, towels, styling tools, hair wash basins, hydraulic chairs, mirrors and lighting can be expensive but necessary to run a successful beauty salon. Beauty salon business loans can be used to purchase this equipment without placing additional strain on your salon’s daily cash flow.
• Cost of inventory: Shampoos, conditioners, serums, styling tools, nail polish, makeup, and other beauty regime products all require an outlay of working capital to purchase and keep on hand to sell to your customers. Use beauty salon loans to purchase inventory in advance so you can provide the best possible service to your customers.
• Supply chain: Salon owners and beauty technicians are struggling with supply chain issues, from supply backorders to long lead times. Loans for beauty salons can be used to create relationships with new suppliers, learn about alternative methods or materials, or purchase supplies and materials in bulk when possible.
• Equipment maintenance: Frequently used salon equipment must be regularly maintained to prevent it from malfunctioning. It’s equally important to maintain a hygienic environment in your beauty salon. Maintenance costs can be high, which can eat into your profits. Beauty salon loans can give you the capital you need to maintain your equipment without negatively impacting your cash flow.

Traditional lenders often consider beauty salons to be a higher risk industry, which means applicants will have more hurdles to overcome when applying for funding from lenders like the SBA or a bank.

Make sure you have a firm understanding of your beauty salon’s background and financials before you apply, including:

• Your operating history
• Revenue and profitability
• Personal and business credit scores
• Collateral

It’s also a good idea to prepare your financial statements and documentation in advance in order to reduce any wait times. Compile the following documentation before you apply:

• Bank statements
• Profit and loss statements
• Personal and business tax returns
• Cash flow forecasts

You may also need to provide a business plan or purpose statement when you apply for a beauty salon loan. Traditional lenders will require a detailed plan outlining how you plan to use your funding, as well as how you plan to repay it, while alternative lenders are typically satisfied with a purpose statement. It’s best to have this information prepared ahead of time in order to reduce any delays in receiving your funding.

Check out our small business loan documentation checklist for a comprehensive list of required paperwork.

As an alternative lender, Greenbox Capital® can approve more beauty salon loans than traditional lenders. We can also approve loans for beauty salons faster, with funds deposited in as little as 24 hours. We offer several types of beauty salon funding to help grow your business, including merchant cash advances, invoice factoring, lines of credit, and more, with funding from as low as $3,000 up to $500,000.

Greenbox Capital funds all auto repair specialties. Our expert Funding Advisors will work closely with you to determine which funding option will help you achieve your goals without compromising your business’s cash flow.