Financing a Beauty Salon Expansion with a 504 Loan

Modern bright beauty salon. Hair salon interior business

The demand for beauty salons services is expected to continue to rise over the next five years, thanks to factors like a rise in disposable income and a decline in unemployment. This is great news for anyone looking to finance a beauty salon expansion, and as a small business owner in this space you have unlimited potential. In fact, one of the only limitations for you may be finding available and low cost financing options.

The good news is that with relatively low revenue volatility and low capital intensity, lending money to beauty salon owners looks very favorable to organizations like the Small Business Administration (SBA) and Certified Development Companies (CDC) like TMC Financing. The 504 loan program gives you the flexibility to purchase land or buildings for your beauty salon, improve or upgrade the building you currently own, and even refinance any debt your salon has accumulated. The SBA even offers increased loan amounts to businesses that qualify for their green energy program.

Eco-Friendly Opportunities for Beauty Salon Owners

Sustainability is a hot topic right now, and eco-friendly concerns are expected to become even more prevalent over the next few years. This will open up new opportunities for salons that embrace nontoxic products for use in their salon or offer eco-friendly beauty supplies for sale in their salon store. Not only will this kind of commitment  increase positive advertisement opportunities and customer loyalty, it will also help you net more additional financing benefits.

Consider the SBA Green Energy Program guidelines listed below. If you are able to meet one or more of these requirements, you could be eligible to receive additional financing through the SBA 504 loan up to $5.5 million. The guidelines that you will need to consider for your beauty salon are:

  • Buying or constructing a building that uses 10% less energy than your current beauty salon building
  • Buying the building you currently lease and making upgrades to use 10% less energy at your beauty salon
  • Buying or constructing a building that generates 10% of the energy it uses

Consult with a CDC such as TMC Financing, to get more details on the green energy program and insight to help decide whether or not it is a good fit for you and your beauty salon.

How A California Salon Used A 504 Loan to Expand

Salon Ana in Fallbrook, California was able to use SBA loan proceeds  to purchase an existing 5,240-square-foot, two-unit building for 51.3%occupancy. Purchasing this commercial real estate allowed the business owner to combine nail and hair operations, which were previously housed in separate locations. The new location offered 50% more space than the prior two locations combined.

The move will allow the salon owner to directly manage her business at all times without having to drive back and forth between locations. Not much changed in way of monthly costs, even though the new facility is nearly 1,000 square feet larger than the other two combined. The salon business itself can repay the new 504 financing without even tapping into tenant income. Utilizing the 504 loan for her salon expansion was a win/win scenario for the owner and her growing salon business.

How An SBA 504 Loan Works When Financing A Beauty Salon Expansion

How does an SBA 504 loan work, and how does it compare to other more traditional loans? Because a 504 loan is a fixed-asset financing tool with a  great deal of flexibility itself, it can help you with any or all of the following:

  • financing commercial real estate, land or buildings
  • construct or upgrade  buildings
  • lease large equipment purchases
  • refinance real estate commercial mortgages

When it comes to refinancing your conventional real estate debt with an SBA 504 loan, it  can help free you up trapped equity and enjoy lower monthly payments due to the low, long term, fixed interest rate.

The loan itself is administered through a Certified Development Company like TMC Financing, and loans are granted in unison with a traditional bank or broker that provides 50% of the total loan. The CDC of your choice facilitates the SBA loan for up to 40%, or $5 million ($5.5 million if you qualify for the green energy program), at a fixed, below-market rate. You would need to provide 10%-15% of the project cost as a down payment.

The projected revenue growth for the beauty salon industry continues to expand with a projected increase of 2.1% year over year for the foreseeable future, so now more than ever, is a great time to consider financing a beauty salon expansion for your business. You can find out more about the loan program from one of TMC Financing’s 504 loan experts. TMC is an SBA Premier Certified Lender, and has funded projects worth more than $9 billion across California and Nevada, resulting in the creation of an estimated 60,000 jobs. With over 35 years of experience, TMC can help you find the financing that is best for your beauty salon and guide you through the 504 loan process. Contact TMC Financing today.

Anna O'Brien

SVP, Business Development at TMC Financing
Anna O’Brien is a Senior Vice President of Business Development for TMC Financing, serving lenders, brokers and small businesses throughout the East Bay, San Francisco and the North Bay. As SVP of Business Development, Anna guides her clients throughout the entire loan process, helping them secure SBA 504 financing. Anna’s deep understanding of the first mortgage loan process helps her match her clients with the best lenders. Anna has many longstanding relationships with all types of first mortgage lenders.

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