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Raising Capital For Your Salon
Posted by
Kate
Dated: October 23, 2007 12:32 PM
Hairdressing is a fast-moving, trend-driven industry, which means change is essential for any successful salon.
Inevitably, financial investment will be involved several times during the life of a business and raising the capital for such investment, whether it be in a second outlet, new technology or an expansion of existing premises, can prove a daunting task.
Fortunately, if you are looking to find some much needed finances to fund a project, there are plenty of options available.
Loans | Grants | Overdrafts | Venture Capitalists
Look At Loans
For most small businesses in the UK a loan is the obvious choice, but deciding what form this should take can be confusing.
The government's Business Link project warns small businesses to think carefully about priorities when deciding which loan type to opt for - the type of finance appropriate for buying assets such as office equipment may not be the best option to finance a major expansion of the business.
If you decide that borrowing a sum of money over a set period of time to an agreed payment schedule is the best option for your business you should:
- Go to a recognised and respected lender
- Shop around - it's a competitive marketplace
- Never borrow from an unauthorised loan shark. You'll be charged exorbitant interest and terms and conditions will often change without notice.
Any reputable lender will ask you about your finances and ability to repay a loan and will usually ask for proof of earnings before agreeing anything. Warning bells should always ring if a loan is agreed too easily.
Depending on the size of the loan, you will probably need to do some, or all, of the following:
- Come up with a share of the capital needed
- Take out insurance to cover repayment set-backs
- Offer something as security
- Supply a detailed business plan.
Always seek professional advice before offering something as security on a loan - if, for example, your home is used as security, this could be lost if repayments are not maintained.
Go For A Grant
There are some 4,500 grants and financial programmes available to UK organisations, but millions of pounds of grant money goes unclaimed every year.
A grant is a sum of money given to a business for a specific project. As a rule they only cover part of the cost of the scheme - usually between 15% and 75% - and often need to be matched by other funds.
Grants are often linked to specific areas of the business, such as new product development or training, and are available from a variety of sources, including:
- The government
- The European Union
- Certain charities.
You should always talk to the grant provider about your project and your chances of success before applying for the grant because there is no point investing time and energy in putting together an application if your plans do not meet the basic criteria of a grant provide.
Overdrafts
Overdraft facilities are unlikely to be substantial enough to finance a major expansion scheme, but for smaller investments such as new equipment, it might be a good short-term solution, offering flexibility in the amount you pay back.
However, as a long-term loan, it is unlikely to be the best option as interest rates tend to be higher than a bank loan.
Venture capitalists
This option would only apply to those looking to borrow a large amount - in excess of £100,000 - and who are prepared to give a share of their business for a lump sum.
Venture capitalists will expect a return on their investment within around three years.
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