You Can Still Obtain Financing in a Tight Economy

You read it in the papers, see it on the news, hear it on the radio: America's beleaguered banking industry is reigning in credit, now that the country's economy has slowed.

Fact is that while some of the nation's largest commercial lenders have taken a tumble, the federal government has taken extraordinary measures to ensure U.S. banks and other lending institutions remain liquid and open for business -- good news for beauty salon operators and other small enterprises looking to take that next step.

So Why Wait if You're Ready To Take It Now?

True, some lenders may take a harder look at your business plan, as well as your financials, but you'll also find that many of the usual rules apply, meaning that if you operate a sound and profitable business, you're likely to qualify for the loan you need to make your business that much stronger.

You'll generally discover you have three potential sources of financing at your disposal: banks, credit card companies and, increasingly, equipment vendors, or lenders affiliated with them.

Before contacting any of the three, make sure to perform a thorough and realistic evaluation of your business, as well as your prospects for qualifying for a loan. You should begin by obtaining a copy of your company's credit report from a credit-reporting agency. You'll find your ranking score typically is determined by existing credit information, including balances outstanding, payment habits and credit utilization, as well as information contained in public records, including liens, judgments and the like.

It's worth noting that even if your score isn't stellar, you still stand a strong chance of qualifying for the financing you need. Much will depend on your ability to access and organize all pertinent records, including your business license and tax forms, as well as your ability to create a compelling and thoughtful business plan.

Get a Game Plan.

Preparing a plan isn't difficult, but it may require time. Before taking pen to paper, cost-out your current fixed expenses with landlords, mortgage holders, utilities and the like, as well variable expenses such as payroll, inventory and equipment. Then estimate the same for the project you have in mind. Does your plan involve moving or expanding into new space? Setting up additional stations in existing space? If so, what is the projected impact on costs and revenues? Which costs are long-term? Which are short-term?

To the extent possible, be sure your plan includes an executive summary; a short description of the business opportunity, your marketing and sales strategy, your operations, and your projected financial forecast.

Don't include any hard and fast numbers until you've costed-out your expenses with multiple landlords, contractors, and vendors. It's always smart to shop around, and potential providers will be happy to supply you with free estimates.

If the numbers don't add up, don't be afraid to revise your project parameters. Rather than expand your shop by 1,200 square feet, you may find it more prudent to expand by 600 square feet. You can always revisit your original plan later, once the time is right. If you're flexible, you'll likely find your lender is too.

Take It To the Bank.

If you wish to obtain a bank loan, you'll want to contact an institution you've done business with before, or one familiar with the salon business and your particular business location. If you have difficulty selecting a bank, ask other operators in your area for recommendations.

If you've never applied for a bank loan, expect a request for collateral to reduce the lender's risk. This may likely include equipment, real estate, inventory, accounts receivable or securities. You also may be required to sign a personal guarantee as additional reassurance of payment. If you're concerned about the terms, remember that few banks are in a hurry to seize and liquidate assets. More likely, the banker will want to work out a payment solution, should the occasion arise.

Also remember that a bank's primary criteria for evaluating a loan application are business experience and knowledge; personal and/or small business credit history, references, education and insurance. Be sure to have all required information on hand.

Take Credit For It.

If you're looking to borrow under less onerous terms, you may want to apply for a business credit card, which typically offers rewards and savings a personal credit card doesn't.

Be sure to look for providers that require a low or no annual membership fee; a low interest rate; 24-hour customer service, local branch access; merchant acceptance; and overdraft protection.

In addition to personal data, the application will likely require your credit score, annual income, and information on the profitability of your business.

Before completing your application, calculate the total amount of revolving credit your company will require. To do so, determine how much your business will be spending on a monthly basis and apply for that amount, provided you are capable of paying it off. If not, revise your plan accordingly.

Unless you can justify incurring additional debt, stick to your original budget, even if your line of credit exceeds your project costs. Now is not the time to incur unwanted credit card debt, which can accumulate quickly once interest is figured into the equation.

Get Yourself Equipped.

If your business plan includes financing for equipment or supplies, you may want to contact your vendors before seeking financing elsewhere. Because your business is their business, vendors can provide insights and advice other sources of financing can't. Depending on your business, they may recommend that you lease equipment rather than purchase it to free up working capital you can apply to your business or business plan.

Experience also allows them to quickly process loan applications. Some vendors can do so so in as few as 24 hours.

If you don't have an ongoing relationship with a vendor, you'll need to shop around for a credible one. As you do, be sure to compare interest rates. Your trade association may be able to recommend vendors that offer free financing.

Before signing a contract, investigate the vendor's credentials and reputation. Again, your trade association may be of assistance, as may your fellow operators.

Once you've selected a vendor, carefully evaluate your options. As you consult, you may identify profit centers, such as a pedicure spa, you hadn't considered before. Again, do the math, weighing projected sales against your equipment and overhead costs. A vendor can assist you in thinking intelligently about the products you purchase and the returns they will likely garner.

The best advice: If you're ready to grow, get going. The economy shouldn't dictate your timing. You should. Just ask any lender.

With just a modest down payment, some plans require no additional payments for several months, no matter how large the transaction. We also can customize payment structures to match your cash-flow projections or the seasonality of your business. You can proceed with confidence during those periods when you need to focus on building your business.

No transactional fees or hidden costs. Additionally, we can provide funding to cover the soft costs associated with flooring, lighting, decorating, delivery and installation fees.

Loan applications needn't be cumbersome, nor should they require excessive amounts of time to process. Because we understand your business, we can approve your application the same day you apply. Don't wait to start building the salon or spa of your dreams.