Leveraging Commercial Mortgages to Grow Your Salon Business

Leveraging Commercial Mortgages to Grow Your Salon Business

Opening or expanding a salon requires significant upfront capital to cover costs like securing a retail location, designing and building out the space, purchasing equipment, hiring staff, and having enough working capital to keep operations running smoothly in the first year.

These major investments often reach hundreds of thousands of dollars or more, so many salon owners turn to financing to cover the initial expenses.

One option for salon financing is through commercial mortgage loans. Commercial mortgages allow salon owners to purchase the real estate to house their business. Here are some key details on leveraging commercial mortgages to grow your salon:

Benefits of Salon Commercial Mortgages

• Retain Full Ownership – Unlike other investments, commercial mortgages allow you to keep 100% ownership of the property you purchase. There’s no need to split ownership with investors or lenders.
• Contribute to Capital Growth – The property you purchase with a commercial mortgage actively contributes to your capital growth over time as the building appreciates in value.
• Stable Monthly Payments – Most commercial mortgages offer fixed interest rates, providing stability in your monthly payments. This makes budgeting and forecasting easier for your salon.
• Lower Interest Rates – Commercial mortgages typically have lower interest rates compared to other types of business loans. This translates to lower monthly costs.
• Tax Deductible Interest – The interest paid on a commercial mortgage is tax deductible, providing additional savings for your salon.
• Improve Cash Flow – By purchasing rather than renting, you can better manage your salon’s cash flow and profitability. Rent payments are replaced with a fixed mortgage payment.
• Potential Rental Income – If you have extra space, you can generate additional income by renting out a portion of the property to other businesses.

How Commercial Mortgages Work for Salons

Commercial mortgages are typically structured as 10-25 year loans with a balloon payment due at the end of the term. The lender will require a down payment of around 30% of the property’s value. Loan amounts are usually up to 70% of the purchase price.

Lenders evaluate salon mortgage applications based on factors like the owner’s credit score, business plan, financial projections, and the salon’s projected revenue. A strong DSCR (debt service coverage ratio) showing the salon can comfortably cover the mortgage payments is key.

Interest rates on commercial salon mortgages currently range from 5-7% for 10-year fixed loans. Origination fees are typically 2-5% of the loan amount, plus closing costs of another 2-5%.

Qualifying for a Salon Commercial Mortgage

To qualify for a commercial mortgage, salon owners will need:

• A detailed business plan outlining the salon’s concept, target market, financials, and management team
• A credit score of at least 680 for the business and owner
• 30% of the property value as a down payment
• The salon property itself as collateral, plus potentially additional collateral like equipment
• Projected revenue high enough to cover the mortgage payments with a DSCR of 1.25 or better

Securing a commercial mortgage for a salon startup or expansion requires strong financials, good credit, and a solid business plan.

Salon owners should shop around with multiple lenders to find the best rates and terms. With the right financing in place, a commercial mortgage can be a powerful tool to grow a salon business.