According to the U.S. Bureau of Labor Statistics (BLS), as reported by Fundera, approximately 20% of small businesses fail within the first year of operating, and 50% fail in their fifth year.
Apart from a lack of market research and an undeveloped business plan, one of the most common reasons businesses underperform is the inability to secure stable financing that will enable them to grow sustainably.
So, if you plan to open a beauty business in the nearest future, you should make raising money for business your top priority before you can start developing a marketing strategy and building an online presence and reputation. As for the latter, you may want to check this comprehensive guide to online reputation management from Weave.
Depending on the niche you want to occupy in the industry — whether you want to open a beauty salon, create your own beauty brand, or set up an online retail store — your financing options may vary. Below, you will find valuable information on raising money to start your own beauty business. We delve into different types of salon financing and ways to attract investors for your own brand. Furthermore, we discuss options to acquire capital applicable to any business niche. Continue reading to learn more about your financing options!
Possible Ways To Acquire Capital
When it comes to raising money for starting a business, there are two primary sources you can consider. The first one is the capital brought in by your own efforts and the effort of your close relatives and friends. The second source is external financing, which includes loans and investments from the bank or any other external agency. It works similarly to pre-settlement funding issues you can read about on sites like oasisfinancial.com.
Each source has its positives and negatives. Nevertheless, suppose you are not able to get all your financial resources from your family, friends, and acquaintances. In that case, you will have to seek out additional financing, which will often require professional assistance.
Leverage Your Own Connections
When looking for financial support for starting a business, it’s wise to leverage your own connections. It is the most straightforward way to achieve success.
Before asking friends and family members for money, make sure that you have thoroughly planned the business idea you want to develop and have done enough research about the market you want to work in. It is crucial to provide your potential backers with realistic projections of future profits or at least a detailed plan on how you’re going to spend their money. If you don’t know how to create financial projections, you can ask a professional for help — a good financial planner will be able to assist you with this process.
You can also use crowdfunding websites such as Kickstarter to raise money for your new business. While sites like these are well known for helping artists and musicians raise money for their projects, they can also be used for pushing startup ideas, innovative software tools, and beauty novelties.
Another option is to look up local business incubators. They usually provide affordable space for new companies’ offices, along with free or low-cost consulting services from experienced business leaders. It means that if you are planning to open a beauty salon or a spa, you should definitely look up local business incubators to inquire about their support programs.
Also, don’t forget about government financing programs if you are a U.S.-based entrepreneur. The Small Business Administration (SBA) offers plenty of grants and loans to help you start your own beauty business without borrowing money from a bank (which we will discuss later).
Find Local Investors
Once you decide that traditional financing methods aren’t going to help you start your own beauty business — perhaps due to lack of personal credit or poor credit score — it might be a good idea to look for local investors who are willing to put money into your business idea. You can start looking for local investors by asking your friends and colleagues if they know anyone who would be interested in supporting your project or by looking up local startups on the internet.
Once you find potential investors, approach them with a well-written business plan and offer them a stake in return for their investment. The amount of investment is usually determined by the level of risk involved. The higher the risk, the more capital investors will demand from you. Therefore, when raising funds from private investors, ensure that you have thoroughly investigated the industry and prepared an appropriate business plan.
Also, it would be best if you did some research about the investors themselves. Do they have enough experience in the beauty industry? Can they add value to your startup? Without asking these questions, you cannot establish which investors can help you reach your goals and which not.
Traditional Loans and Lending Services
Banks are an essential source of external financing for businesses. The main advantage of a bank loan is that it provides you with a secured income stream. However, the downside is that bank loans usually require collateral and may have high interest rates associated with them. Consider getting a loan from banks like SoFi personal loans, which is known for its low-interest rate and unsecured loans.
If your business is just starting out, but you have a good credit score and a track record of successful financial management, it might be a good idea to apply for a small business loan from your local bank. You can get funding from either a microloan program or a standard small business loan.
Microloans can provide up to $50,000 and often have low-interest rates. However, they usually don’t last longer than six months and demand the borrower to repay the entire loan amount in the end. In addition, there are limits on how much funding you can receive through this type of loan. On the other hand, small business loans offer higher sums of cash and typically last longer than microloans. Nonetheless, they often have higher interest rates and require a larger down payment.
If you don’t want to get a loan from a bank, you can turn to peer-to-peer lending services. They are great for entrepreneurs who have difficulty getting funding from banks or other traditional lending institutions.
The main advantage of using peer-to-peer lending services is that you can receive funding without having to put up your home or any other property as collateral. The downside is that you may have to pay much more interest than using a traditional bank loan.
Shania Brenson, the founder of 15M Finance and the expert in lending niche says that you may find yourself so focused on getting things done that you don’t have time to worry about how your business will grow or expand—and that’s where emergency loans come in. Emergency loans are designed to help increase turnover when needed. They can be used to contribute capital to the development or expansion efforts, as well as for general operating expenses. “These loans can provide a valuable boost during tough economic times when traditional financing is not available due to market conditions,” says Shania in the context of small loans for businesses.
Therefore, when it comes to choosing between getting a traditional loan from the bank or going with peer-to-peer lenders, it’s vital to consider your needs and your personal financial situation to make a decision that’s right for you.
Acquiring Capital for Your Own Beauty Brand
If you plan to create your own beauty brand, you should consider raising capital through crowdfunding websites, such as Kickstarter or Indiegogo. These sites provide a way for creators to gather funds for their projects by offering their backers rewards in exchange for their capital. Once your campaign starts getting funded, keep updating your backers about the progress of your project. Doing so will help you build trust with your potential customers and attract new prospects.
Another way to attract financing for your beauty brand is to go to beauty conferences and industry events where venture capitalists, angel investors, and other people interested in supporting beauty brands are present. The downside of this method is that your brand has to be innovative and original enough to attract the attention of potential investors at these events.
When promoting your brand at beauty events, remember that people who attend these events are looking to get something really innovative. It means that if you are just starting out on your own, but you don’t bring anything new to the table, it might not be worth attending them because they may not provide you with the results you need.
As you can see, there are many different ways to acquire the necessary capital for starting your own beauty business. While some people advise entrepreneurs to avoid taking bank loans if possible, others claim that traditional financing methods are a necessary part of any startup’s funding strategy. As always, the truth lies somewhere in the middle.
The most important thing is carefully analyzing your personal financial situation and considering all your needs. Perhaps there are some personal connections you can use to your advantage. Consider all available options before making the final decision. This way, you will effectively raise money for starting your own beauty business. Good luck!