Five considerations when searching for business finance

Business finance is something that many salon owners are looking for, but finding difficult to come by as traditional bank loans enforce stricter eligibility criteria, lending guidelines and repayment schedules for small businesses. Extensive credit checks also put many salon owners off even applying – and those that do are often turned down, says Tony Pegg, managing director, United Kapital. So, is there an option for hair salon owners who want to invest in their business, but without the hassle of tedious bank loan routines and endless rejection letters? Here are factors to consider when applying for a loan to help you through the process. Figure out your options. There is a wide range of lending options available, but it’s surprising how many small business owners know little about these. You don’t just have to go to your local bank! There are many alternatives to bank loans, including merchant cash advances, as well as crowdsourcing, equity financing, peer-to-peer lending and even borrowing from friends and family. There’s lots of options out there, so think carefully before making a decision on which route is best for you. How do repayments work? You need to look carefully into how you repay, when you repay and how much interest you are repaying on the finance you opt for. Bank loans traditionally offer longer repayment terms, but the Annual Percentage Rate (APR) that you are paying off could make the repayment schedule very long and overly expensive. On the other hand, short-term loans have higher rates of interest but you can repay these in a few months, which could make all the difference. Also, with loans like the cash merchant advance, you don’t have fixed repayment fees – repayments are made through a percentage of your monthly debit and credit card payments from your customers. Traditional loans can include set fees that must be met each month. Is it secured or unsecured? Many banks require collateral to secure any funds they give you. This might include a building or a vehicle. However, start-up companies may not have enough collateral to be able to get a secured loan. Of course, you can choose to secure your personal assets – such as your home, but this is a big gamble and considered very risky. Improving your credit score. Many banks look into your credit score – both business and personal – before lending to you. They want to know you won’t be a risky customer and that you have history of repaying loans in full in the past. Alternative lenders may not require a minimum credit score but many banks will. To improve your credit score, there are some techniques you can employ. Take out a credit card and use it (wisely, whilst repaying all amounts before the deadline date) to demonstrate you are able to repay the advance. Put yourself on the electoral roll as well. You can also check what your credit score looks like online, for a small fee. It’s a good idea to get your credit score in order before evening considering a loan. The speed in which you need the finance. You may need cash quickly, which is one of the biggest advantages of alternative financing. Bank loans, on the other hand, may require a lot of paperwork and form filling before you can get the loan (this could take months!) If you need fast cash for your hair salon, perhaps to settle a bill or plug a gap in your working capital, make sure you look at the speed in which you can receive the advance into your account. When it comes to applying for finance for your hair salon, make the necessary calculations and considerations before taking a dive into one particular route. There are lots of options out there and what might be right for you, might not be right for another business. Do your homework properly and make the right decision for your business!