Can I get a commercial mortgage to open a hairdressers?
If you have hopes of setting up a salon or barber business but feel unsure about how to get funding, then this guide will provide you with the practical information you need.
The good news is that getting finance to open a hairdressing business can be straightforward - if you know where to look and have the right advice.
What is a commercial hairdresser mortgage?
Commercial mortgages are often taken out by business owners looking to purchase a property, whether that be for a salon, gym, garage or office block.
Lenders agree to loan the borrower a percentage of the property price under the agreement that the loan is repaid within a set time frame with added interest.
As with a residential mortgage, a lender will want to see that you can comfortably afford your repayments. Therefore, you’ll need to persuade them that your hairdressing salon will be profitable which is why lenders will ask to see:
Your business plan with detailed accounts of how you’ll spend the loan
Your experience as a salon owner, manager and hairdresser
Your recent and past bank statements
Your credit profile (business and personal).
How much could I borrow to open a salon in the UK?
Depending on your circumstances and financial position, you may be able to find a lender to provide 70 to 75% of the purchase price of the property by way of a commercial mortgage.
This would mean that you need a 25% deposit, so as an example, a commercial property worth £100,000 under the above terms would require a £25,000 deposit.
That being said, every lender really is different and while one may be happy to loan with a LTV of 75% another may have criteria that restricts its lending to 65%.
Although this can make the search for a lender feel a little tedious at times, it can also be good news because even if one lender rejects you, there may be another elsewhere happy to approve.
Can I get a 100% commercial mortgage for a salon?
It’s unlikely that a lender will provide a commercial mortgage of 100% of the asking price for the property and the majority of lenders will require a deposit.
How long does a commercial mortgage last for a salon?
A commercial mortgage can span between 3 to 25 years, although every application will be assessed separately and so the term length for your own agreement may differ.
Some applicants prefer shorter loan repayment terms because ultimately, this will usually result in paying less interest overall.
Short term loan alternatives such as bridging loans can come with higher interest rates, so although these types of loans can be repaid quicker, they can present greater financial risk.
Speak to one of our advisors via our online chat and they can suggest the most viable option for you based on your circumstances.
Can I get a commercial mortgage to start a new hairdressing or barber business?
Things can be a little more complicated for first-time borrowers and newbie entrepreneurs. Without a history of financial accounts to access, lenders will see you as more of a risk.
Some start-up business owners may find that there are lenders who won’t consider them at all but thankfully, there are niche lenders who may be more open to the idea.
You may have to pay a higher interest rate or provide a larger deposit, though again, this will vary between lenders.
Can I get a commercial mortgage with bad credit?
While it’s possible to apply for a commercial mortgage with bad credit, you may find that your choice of lenders will be reduced as lenders prefer to loan to borrowers who they deem more likely to repay in full and on time.
Your credit report is just one of many factors that commercial mortgage lenders will assess, so even if you have a low credit score, your income or securable asset may allow you to still proceed, depending on the lender’s appetite to loan to someone in your circumstances.
What costs are there to consider when opening a salon?
Sometimes business owners take out a commercial property mortgage in conjunction with a business loan in order to offer additional financing, either to secure the property they need or to pay for other costs associated with opening and running a new hairdressers such as:
Marketing costs for a website or advertisement to bring in customers
Security for the building including CCTV
Business loans can range anywhere between £5,000 - £1,000,000 and can be secured or unsecured. Generally, lenders ask for security if the loan exceeds a certain value as a way to mitigate risk.
Is it a commercial mortgage for a hairdressers right for me?
Opening a new salon is a big step that could affect your future finances, so always gather as much information as you can about the property you intend to buy, speak to other salon owners about their experiences and seek professional advice about your mortgage.
The rate you pay for your commercial loan affects your repayments and monthly outgoings as a business, so don’t accept the first offer you see for a commercial mortgage and never apply without checking your eligibility ahead.