Financing For Tanning Salons
With winter quickly approaching, there are plenty of people in the United States getting ready for the regular indoor tanning sessions, because we all need to be tan while bundled up in endless amounts of layers! Appearance is everything in society today, even among older, retired generations that have lots of money to spend. The beauty industry is constantly growing due to the wide variety of necessities that people use today, ranging from hair, skin, and cosmetic care all the way to deodorants, antiperspirants, and oral hygiene products. In 2015 alone, the beauty industry generated over 56 billion dollars in the United States. The beauty industry has avoided economic downturns and has essential proven to be recession proof, even during 2008 when most business took a large hit financially. This industry has continued to thrive, even with more of the population being wary of health and environmental concerns. Pretty amazing, if you ask me. Tanning salons in particular have noticed a slight decrease in clientele due to increasing awareness about these issues, however the tanning salon business still brings in an annual gross revenue of $187,500 a year.
The American Academy of Dermatology claims that 7.8 million women still tan indoors at tanning salons, with 70% of those women being Caucasian girls and young women. Surprisingly, 1.9 million men also still use indoor tanning salons as well. Tanning salons are interesting because they cater to such a variety of regions; people want tanning salons in areas that have chilly winters, however geographical locations that allow people to wear more revealing clothes to show off their tan’s also demand tanning salons. The latter is why Florida has the most salons; 7.8% of tanning salon establishments are throughout Florida!
Even though there is growing concern for health and environmental concerns throughout the United States, the tanning salon industry is continuing to grow due to their integration of spray tan services in most locations. This concept caters to the health conscious clients who still crave that perfect California beach tan! According to a recent survey was done throughout the US spa and salon sector which showed that spray tanning and body bronzing have become the most lucrative services in the tanning salon business. This has become more apparent to entrepreneurs looking to start up or invest in successful businesses, leading to over 12,000 tanning salon businesses across the United States. While all of the industry trends and statistics may sound intriguing, it is important to remember that the tanning salon industry comes with a price – starting up a business like this may start with costs up to $300,000.
Reasons and Uses For Tanning Salon Financing
If a business owner can make it past this initial start-up phase, ongoing expenses can be costly, which is why small tanning salon businesses looking to compete with the major tanning salon franchises need to be conscious of their financing options.
- Equipment is the most essential piece of a tanning salon. Tanning salon equipment can cost anywhere from $2,500 to $30,000. Being aware of different financing options for the variety of equipment is vital. Equipment for tanning salons include:
o Stand up equipment
o Luxury sun beds
o Spray Tanning equipment - Rent expenses can be particularly high for tanning salons because location is everything for this type of business, leading locations to be in high traffic areas to reach specific key demographics.
- Payroll and miscellaneous taxes can be difficult to keep up with during slower seasons, such as during the summer when people have the ability to tan outside.
- Marketing and advertising is essential in the tanning salon business today. There are so many large competitors in this business that without marketing, a small tanning salon business could not stand a chance!
Comparing Tanning Salon Financing Options
| Types | Rates | Terms | Funding |
|---|---|---|---|
| Bank | 6-10% | 3-7 years | 14-30 days |
| SBA | 6-10% | 3-7 years | 10-30 days |
| Line of Credit | 5-15% | 1 – 3 years | 7-30 days |
| Alternative | 6-25% | 1-5 years | 5-7 days |
| Cash Advance | 1.16-1.55 | 3-24 months | 1-3 days |
| Equipment Lease | 5-15% | 1-10 years | 7-10 days |
Tanning Salon Bank Loans
Bank term loans and lines-of-credit are always the preferred option for financing a tanning salon because they offer the best rates and lowest terms of all small business loans. But in order to qualify a salon owner must have excellent credit and the business must have a history of profitability. The process of securing a tanning salon loan through a traditional bank takes anywhere from weeks to months.
Documents needed include:
- Tanning salon tax returns (3 years)
- Tanning salon income statements (year-to-date)
- Tanning salon balance sheets (year-to-date)
- Schedule of liabilities (list of all business debt)
- Tanning salon owner(s)’ tax returns (3 years)
- Tanning salon owner(s)’ personal financial statement
SBA Tanning Salon Loans
SBA loans are an excellent small business financing option for tanning salon owners who want to secure bank-rate financing, but don’t quite meet a banks’ credit or cash-flow criteria. SBA tanning salon loans aren’t loans by the government, but instead are a guarantee by the Small Business Administration to cover lenders’ losses should borrowers default on their loans. SBA financing for salons can be exhaustive, with the time-frame for funding taking between 10-60 days.
Documents needed for SBA tanning salon financing:
- Tanning salon business tax returns (3 years)
- Tanning salon income statements (year-to-date)
- Tanning salon balance sheets (year-to-date)
- Schedule of liabilities (list of all business debt)
- Tanning salon owner(s) personal tax returns (3 years)
- Tanning salon owners(s) personal financial statement
Alternative Tanning Salon Loans
If a tanning salon doesn’t meet the credit or cash-flow (profitability) criteria of traditional and SBA lenders, and option would be to seek alternative tanning salon financing. Alternative online lenders have a much lower credit criteria, and generally don’t require the collateral required by traditional lenders. Alternative loans take just minutes to pre-qualify, and around a week to fund.
Documents needed for alternative tanning salon lending:
- Tanning salon business tax returns (2 years)
- Tanning salon income statements (year-to-date)
- Tanning salon balance sheets (year-to-date)
- Schedule of liabilities (list of all business debt)
- Tanning salon owner(s) personal tax returns (1 year)
Tanning Salon Asset Based Lending
Asset based business loans are a way for tanning salon owners who own personal or commercial real estate to use their property as collateral for a business loan. An asset based lender can provide loans in a 1st, 2nd or even third position with a loan-to-value between 25-75%.
Documents needed for asset based tanning salon lending:
- Application
- Bank statements (proof of cash flow)
- List of collateral
- Appraisal
Tanning Salon Equipment Financing
Equipment leasing a way for tanning salon owners to lease brand new or used equipment without having to pay the full-cost of the equipment upfront. The tanning salon need just provide an application, bank statement and vendor quote, and a lender will purchase the equipment and then lease it to the salon. The process takes anywhere from a few days to a couple of weeks.
Documents needed for equipment leasing:
- Application
- Bank statements
- Vendor quote/purchase order
Tanning Salon Merchant Cash Advance
Merchant cash advances are not business loans, but the sale of future receivables in exchange for an upfront payment of cash. Cash advances come in both ACH and MCA loans. ACH loans are cash advances that are repaid daily by remitting a set amount each day as repayment to the lender. MCA loans are when a certain percentage of a tanning salon’s credit card processing statements each day.
Documents needed for a tanning salon merchant or business cash advance:
- Application
- Bank statements and/or credit card statements
