How Beauty Businesses Get Funding

How Beauty Businesses Get Funding

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When starting a new beauty business, finding the money you need can be hard. You must pay for everything from rent and marketing to furniture and inventory. Where do you get the funds if you have an idea for a new type of product or service that no one else offers? There are many ways—but not all rely on traditional loans.

Beauty businesses get funding from various sources including: crowdfunding, grant money, venture capital firms or angel investors, borrowing money from friends or family, the Small Business Administration, bank loans, and credit cards.

Crowdfunding

How Beauty Businesses Get Funding

Crowdfunding is a way to raise money from many people by getting them to pool their money and give it to you. This is a great option for small businesses, especially if you’re not interested in borrowing money from banks or investors.

There are two main types of crowdfunding: rewards and equity based. Rewards-based crowdfunding provides your backers with something in exchange for donations—like an exclusive customer discount or special gift. Equity-based crowdfunding works like the stock market; backers get shares in your company, but they don’t own any physical goods like those who back rewards-based campaigns do.

To crowdfund your beauty company’s expansion, you’ll need to set up accounts on several different platforms where entrepreneurs list their projects and receive funding: Kickstarter, Indiegogo (my personal favorite), GoFundMe (another popular platform), Patreon (a new one that allows patrons to give recurring monthly donations), etc.

Grant money

There are a lot of misconceptions about grants, so let’s clear them up. Grants are not loans. They’re not gifts, investments, or tax-deductible (although they can be used as leverage). And they’re not something you have to pay back. So, this is a great option for those starting a business or wishing to maintain funding for a business.

A grant is an award of money from an external source that does not require repayment by the recipient and is typically given for a specific purpose, such as research or community development. When it comes to business grants, there are many different sources available, including state and federal governments and private organizations like businesses or non-profits that have some extra money lying around with no specific use.

Grants that help beauty businesses:

  • The Women in Business Enterprise (WIBE) Fund: Provides grants to women starting or expanding their businesses.
  • Venmo Small Business Grant: The program offers financial grants and mentorship services to 20 new and existing Venmo Business Profile customers.
  • Klarna Small Business Initiative: Klarna has announced a partnership with Macy’s that will give 10 small businesses free access to “buy-now, pay-later” payment services for one year. The deal also includes $40K worth of media services across the Klarna ecosystem.

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Venture capital firms or angel investors

Venture capital is a private equity investment in which the investor makes a long-term commitment to finance risky, early-stage companies. It may be distinguished from other types of financing by the relationship with the investor, which is usually long-term and close. In return for funding, the investors typically get a share in the ownership of their fund’s portfolio companies and an active role in governance. 

At the same time, they are involved with that company. Venture capitalists help develop and commercialize new technologies through investments, working alongside entrepreneurs to grow new businesses into full-fledged operations that can eventually become independent entities.

Angel investors help entrepreneurs get started with their business ideas by providing them with money for rent, salaries, or initial product development costs. Angel investors are generally high net worth individuals who invest their own money rather than gathering funds from other sources such as banks or venture capital groups.

Borrowed money

When it comes to borrowing money for your business, you can consider family and friends.

Family loans are usually the last resort for entrepreneurs. If you can’t think of any other way to fund your business, you might ask relatives if they would be willing to lend you the cash.

However, there are many reasons why this is bad:

  • You may be in debt forever.
  • They might take control over certain aspects of your life or business.
  • If things don’t go well for them financially, then you’re still stuck with their loan hanging over your head—and if things do go well, they might expect more than just repayment in full!

So, what about borrowing from friends? Sometimes friends are willing to help when no one else will; however, like family loans, these financing arrangements come with risks that could cost more than just money down the line. Any friend-based lending arrangement must have clear terms and expectations before signing on the dotted line. 

But even then, there may be unforeseen repercussions later down the road when it comes time to check back in with each other after starting up this type of arrangement together.

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Small Business Administration

The SBA (Small Business Administration) is a government agency that provides loans to businesses, including those in the beauty industry. The SBA’s role in the U.S. economy is significant as it helps small businesses get off the ground and grow, which benefits all Americans through new products and services they can bring to market. 

The agency offers several types of loans:

How Beauty Businesses Get Funding
  • 7(a) Loan Program – This program offers long-term fixed-rate financing up to $5 million with long-term and short-term for new or expanding businesses. These loans are used for purchasing real estate, machinery, equipment, and fixtures; purchasing inventory; refinancing debt on existing assets; working capital needs; leasehold improvements; expansion costs (including construction materials); modernization of equipment; advising in the creation, growth, or restructuring of an existing business.
  • The SBA 504 loan program is a long-term loan that is fully amortizing with a term of 10-20 years. The maximum loan amount is $5 million for businesses with less than $15 million annual revenue. There are fees associated with obtaining an SBA 504 loan, including application and processing fees and an ongoing servicing fee of 1% per annum on the loan’s outstanding balance after closing. This loan can only be used for existing buildings or land, new facilities, long-term machinery, and equipment, or the improvement or modernization of land and existing facilities.
  • Microloans – A microloan is a small business loan that can be used for any number of things, including buying inventory, purchasing equipment, or paying off debt. The maximum amount you can receive through this type of loan is $50,000, and the monthly payments will vary depending on how much money you need to borrow. This loan can be used for working capital, inventory, supplies, furniture, fixtures, machinery, and equipment.

Bank loan

A bank loan is the most common way to get the funding you need for your beauty business. Banks will not always offer these loans, so make sure you do research before approaching banks or other institutions that lend money. It’s important to consider the interest rate, terms of the loan, and how long it takes to get approved. You also want to ensure that you qualify for them by having good credit scores, stable income, and strong collateral (property).

Banks will consider several factors when determining whether you qualify for a loan, such as your credit score, income, and the value of your collateral. If you don’t have any collateral to offer, banks may require you to take out an equity loan.

Credit cards

Credit card companies can be a good way to finance your business. They typically offer lines of credit to businesses and charge interest on the money you borrow. But they also often offer rewards for using their cards, like cash back or points that can be redeemed for airline miles or gift cards.

The downside of using a credit card to finance your business is that you’ll have to pay interest on the money you spend. And if you don’t pay off your balance in full by the end of each billing cycle, you could pay more in interest than you originally borrowed.

Credit card debt is bad news, so don’t overuse this option if you don’t have a steady income!

It’s important to note that while the above funding methods can help you start your beauty business, they don’t always provide the long-term capital you need to keep growing. This is why entrepreneurs must save their own money by starting small and staying lean until they find a sustainable model for their business.

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Frequently Asked Questions

How Much Insurance Do You Need For Your Accounting and Payroll Business?

How much money do I need to start a beauty business?

It depends on the type of business you’re starting. Several factors go into the cost of a beauty business, including the type of products you sell, the brand name and packaging you use, and your location.

How many beauty products should I start with?

It’s important to start small and build your business as you go. You can sell one item at a time or a few things that work together but starting with too many inventory items will quickly overwhelm you.

To learn more on how to plan your own beauty business click here!

Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.