When a business owner dismisses the idea of small business loans altogether, it’s usually because of a myth about business financing. These myths don’t just pertain to small business loans. One says that any business with strong revenue or profits should therefore have no trouble maintaining strong cash flow. This suggests that when it comes to financial issues, a successful business should be able to fix the problem on its own. But the truth is, some industries are naturally prone to occasional cash flow crunches, regardless of how much revenue is flowing in during busy periods. They need special business funding programs that act as ongoing cash management tools.
Beauty salons and spas, for example, benefit greatly from merchant cash advances, for several reasons. With this type of working capital loan, beauty salons can add new services and serve more customers without endangering their monthly cash reserves.
1. You Have Clients Who Pay In Advance
A merchant cash advance is a viable option for any business that generates significant revenue from debit and/or credit card transactions. You don’t have to have perfect cash flow all throughout the year. What helps a lot, however, is having a great deal of clients who pay for your services in ahead of time. Much like a doctor’s office or hotel, you have a good sense of how much business you’ll be doing in the immediate future.
With a merchant cash advance, the amount you are given depends on your business’s average revenue from debit and/or credit cards over a 3-month period. A beauty salon could theoretically apply for a merchant cash advance when revenue is at its annual peak and then concentrate on booking as many guests as possible in the months to follow. Repayment wouldn’t begin until you start processing debit and/or credit cards on an agreed-upon date.
Beauty salons or spas with different billing systems might be better suited for a business line of credit or standard business term loan. The latter is particularly advantageous for spas that accept insurance for certain treatments as well as upfront payments.
2. A Lot Of Money Is Tied Up In Inventory
Many UCS clients who take out merchant cash advances rely heavily on disposable supplies and retail merchandise. Beauty salons have long been encouraged to sell more branded apparel to create daily revenue streams and augment revenue from spa services. In the case of new releases or holiday promotions, inventory orders must be substantial. But the main purpose of another revenue stream is to save money for growth-related efforts, not to finance day-to-day operations. A merchant cash advance allows you to avoid using your standard operational funding and income to grow. This can be accomplished in a number of ways, and UCS is willing to take the time to find the solution that makes the most sense for your financial cycle.
And while you probably know how much disposable supplies to order, you might not be too sure when your retail merchandise is going to catch on. A merchant cash advance is the perfect answer to this dilemma: You know how much you’ll need to borrow but your additional revenue timeline isn’t so clear. If it takes a little longer than expected for the merchandise to sell or revenue fluctuates month-to-month, you’ll still be able to pay regular business expenses.
3. Certain Accounts Must Go Untouched
It’s common for beauty salons to run into debt or develop bad credit. Monthly expenses can easily exceed monthly income and you wouldn’t even know it because profit remains the same. In these instances, it is tempting to dig into operational funding or your monthly reserve account to make up for the losses. The latter refers to the money used for large quarterly or semi-annual payments, like taxes or insurance. Neglecting to side aside cash for these payments is a huge risk, partially because it gives you the impression that you have extra money to spend when, in reality, you do not.
Working capital loans like a merchant cash advance prevent you from digging into reserve accounts, which are vital for businesses that frequently run into emergencies like broken equipment. It is also completely acceptable to use a business loan to pay off other outstanding debts when using your own money for an upfront payment would obstruct cash flow or jeopardize a relationship with a big vendor.
New Small Business Loans For A Timeless Disadvantage
Many beauty salons and spas are owned by women and therefore start out with less working capital than male-owned businesses. This disadvantage makes female business owners more likely to have bad credit and experience unnecessary financial obstacles. For the countless business owners in this situation, we offer special small business loans for women. Convenient terms and substantial borrowing amounts can finally be accessed by women who are struggling to grow their businesses solely because they might not have a sufficient cushion to fall back on.