In any economic climate, someone is going to need a haircut. As such, barbershops are almost always able to remain profitable and cash flow positive in any economic climate. Obtaining a business loan for a barber shop is a pretty straightforward process given that not too much equipment or capital is needed in order to launch this type of business. Of course, unless the individual entrepreneur is looking to establish a very large scale barber shop from the onset of operations – most barbershops are able to launch their revenue-generating operations with about $25,000 to $100,000 of capital. For an entrepreneur that is seeking a business loan for a barbershop the recommended down payment is going to be about 20% of the total capital required in order to commence revenue-generating operations. One of the nice things about these businesses is that they generate high gross margins from their services, they are nearly immune from negative changes in the economy, and they can produce income that can easily satisfy any underlying debt obligation.
When developing a business plan that is appropriate for a barber shop, especially one that is geared for a business loan – a full list of the furniture, fixtures, equipment, inventory for almost all business loans exceed $10,000, a business loan is going to be required. This business plan should have a three-year profit and loss statement, cash flow analysis, balance sheet, breakeven analysis, and other financial metrics are common to a business plan specific for a debt facility.
If an individual who is seeking a barber shop business loan does not know how to develop a business plan then we recommend that you speak with a certified public accountant or properly qualified business plan writer to assist in this process. This can be somewhat of a difficult undertaking given that these documents typically range anywhere from 25 pages to 40 pages depending on the requirements of the lender.
One of the key things the lender is going to want to see when applying for a barber shop business loan is that they want to make sure that a substantial portion of the capital they are lending is collateralized. Again, it is very important that the documentation provided to a lender clearly showcases what equipment is going to be purchased with the financing. The financial institution may also request the specific vendors from which the equipment is going be purchased in order to make sure that the money is going where the entrepreneur says it’s going.
In some cases, a barbershop business loan may actually take the form of a working capital line of credit. This is primarily due to the fact that barbershops have moderate to moderately low operating expenses, and they typically do not need all the money that they need upfront in order to commence revenue-generating operations. As such, some entrepreneurs will take to using a line of credit to the other not paying a substantial amount of interest on a large capital commitment and only paying interest on the funds that are drawn down as needed. Of course, this is only a determination that can be appropriately made by the individual entrepreneur, their business advisors, as well as their certified public accountant. In some of the new articles that we will be providing over the next few months, we’re going to touch on what types of businesses typically fare better when using a business loan rather than a working capital line of credit.
When applying for a barber shop business loan, the entrepreneur should have their tax returns for the last three years ready to be shown to the bank as well. These days, most financial situations, banks, and related lenders want to see substantial amount of documentation before the issue a business loan. This is primarily due to the fact that the housing and credit crisis that started in 2008 and ended in 2011 has caused these businesses to want significant documentation in order to keep their loan losses to a minimum.
Barber shops also make very good candidates for small business administration loans. The SBA is very keen to provide guarantees for this type of financing given that barbershops are always in demand, providing number of jobs to the community, and can be readily expanded any time. The high gross margin generated from haircuts, hairbstyling, and related services is almost always enough to cover a monthly debt obligation to a financial institution.
Overall, obtaining a business loan specific for a barbershop is a pretty easy process. This is something that only a qualified barber can do, and the moderately high barriers to entry – primarily due to the license and educational requirements of the barber – ensure the competition is kept moderate in any given market.