Are you thinking that it’s time to expand your spa or massage practice? Maybe you want to add another location or you would like to offer more skin care services and that involves buying new equipment and hiring more staff. You also may be ready to remodel your facilities to be able to accommodate more clients or expand your retail section or just because the décor is dated and needs refreshing.
When it comes to funding for expansion to accomplish your goals, you have a number of options. In addition to self-funding, such as applying for a home equity loan or even using credit cards, you can borrow from friends and family, find equity investors or apply for a loan from a bank loan or other small business lending sources. Here are some of the pros/cons of each:
Self-funding: Self-funding options may make financing easy; however, they still pose some risk. In the case of securing a home equity loan secured by your residence; you could potentially lose your home. Cash advances against a credit card come with a high interest rate so can be very expensive. You also can consider withdrawing money from your Individual Retirement Account (IRA), too, but unless you pay the money back within 60 days, you’ll pay penalties.
Friends and family loans: While family and friends may be open to supporting your business growth and even may lend you the money without adding interest, there’s always a risk of harming a relationship. If you are going to take funds form family or friends; keep it strictly as business. Entrepreneur advises that you put the agreement in writing to protect both parties and the relationship. Draw up legal papers that state the individual is putting money into your business and indicate how much money you need, what you will use it for and how you will repay it.
Venture capital: The spa market is over $16 billion so worth consideration by venture capitalists. In addition to funding, venture capitalists can give you access to other resources as well as their connections, notes Odysseas Papadimitriou, founder and CEO of Evolution Finance, writing for Inc. You also can benefit from VC expertise and management experience. However, VC investments will mean that you give up some portion of your equity as well as some amount of the day-to-day management of your business. VCs have their own ideas about how you should run your business.
Bank loan: Banks loans are a reliable way to fund small business expansion and the bank doesn’t get involved in running any aspect of the business. Also some banks offer low-interest loan backed by the Small Business Administration, which can have more favorable rates than other loans However, in order to get a bank loan you may need substantial collateral, good credit and a long track record of success. In order to be considered for a bank loan, plan to show all of the financial details of your spa or massage practice (loans, debts, bank accounts, etc.) and balance sheet, which lists all of your business assets, liabilities and capital. The bank wants to be confident that you have solid cash flow sufficient to repay the loan.
Direct online lenders: Securing a loan through an online lender can be relatively easy. However, you want to be sure the lender is reputable. NerdWallet, personal finance website, says about online vendors, “The average APR on these loans ranges from 7% to 108%, depending on the lender, the type and size of the loan, the length of the repayment term, the borrower’s credit history and whether collateral is required. These lenders rarely can compete with traditional banks in terms of APR.” NerdWallet recommends that you use an online lender when you lack collateral and time in business and need funding quickly.
You have a number of funding options to consider when you want to expand your business. Explore all of them thoroughly to make the best and most comfortable choice so you can be sure to sleep at night.