Know in advance that financing a tanning salon is going to be difficult, even if you have great credit.
The best advice for getting a tanning salon loan is to have as little debt as possible (both personal and business). This may include some combination of debt financing, leasing and a lot of cash. Be sure when working on your business plan to see what your return on investment is because you may be better putting your money in the bank and saving a lot of struggles of running a business.
When you have your business plan completed begin talking with local banks. While the larger banks may have more money to spend, it is usually the smaller local banks that are more interested in actually making the loans. Before you approach the bank be sure you have saved 25-30% of the total project costs in cash for your equity position. Currently, bank financing approval is in direct relationship to how good your personal credit is. If your credit isn’t great, make it better before going to the bank.
Many times banks will require a SBA (Small Business Administration) guarantee for a tanning salon loan. Despite the many myths that are out there, the SBA does not make loans. Instead the bank approaches the SBA with your business plan and other paperwork and requests a guarantee (a sort of insurance policy) so if your business fails, the SBA will pay the bank a percentage of the loan. The good news is that this will encourage the bank to make a tanning salon loan. The bad news is that it will cost you more in upfront fees and higher interest. Figure on your SBA loan to pay an additional $1,500 in packaging and an extra .5% interest. Regardless of whether your tanning bed financing is from the bank or with a SBA guarantee, you will be required to do a personal guarantee.
There is a good chance you will have to try many banks to get a loan for your tanning salon. Some banks don’t like tanning salons and some have too many loans outstanding when you approach them. Keep trying and take their criticisms and use them to make your plan and presentation better for the next bank.
When you are asking for financing, be sure to either ask for additional working capital (cash) or a line of credit to get you through the first 6 months to a year. Remember there will be slow months (JASON) and you need to have the cash cushion to make it through and bank extra money in your second year.
Additional sources for a loan is through a home equity loan. This money is also usually cheaper and faster to get than a business loan. When many people hear this they say, “I don’t want to jeopardize my house in case the business doesn’t work out”. The reality is when you sign the paperwork with the bank, they are going to require a lien on your house anyway to secure the loan. Banks will look to minimize their exposure in case the loan goes bad, it’s just how it works.