Beauty Salon Feasibility Study in Minnesota

Minnesota salons borrow more at the midpoint

The figure that sets Minnesota's beauty salon lending apart is its median loan. At $131,000 it is 1.31x the national median for salons. In other respects the cell follows the national salon record closely: a location quotient of 1.00x means salons take the same share of Minnesota's SBA loans as of the country's. Minnesota approved 247 salon loans worth $57.6 million between FY2017 and FY2026, which ranks 11 of 54 among states and 6 of 39 among classes within the state.

Loan sizes, lenders and the Twin Cities

A higher midpoint does not make these big loans: the middle half runs from $42,000 to $254,400. SBA 7(a) carried 219 loans and SBA 504 carried 28, and 12.6% went to franchised salons. The 7(a) loans are held mainly by U.S. Bank, National Association with 23 loans for $4.0 million, Old National Bank with 18 for $4.5 million, Wells Fargo Bank National Association with 15 for $1.3 million, The Huntington National Bank with 13 for $3.7 million and Sunrise Banks National Association with 10 for $933,000. Midwest Business Finance Corporation holds 9 of the 504 loans and Amplio Economic Development Corporation holds 7. Hennepin County alone has 76 loans; Ramsey has 27, Dakota 25, Washington 19 and Stearns 18.

What the Minnesota floors mean

Salon approvals in Minnesota carry a cancellation floor of 10.5% for FY2017 to FY2024, and 11.5% if loans not yet disbursed are counted as cancelled. Charge-offs to date cover 4.5% of the 112 Minnesota salon loans paid out over FY2017 to FY2021, and 3.6% failed inside their first five years; with loans still open, both are minimums. For a lender, that makes a salon loan mostly a bet on the operator: stylists can leave and take clients with them, so the plan has to show retention. For a borrower, the larger Minnesota midpoint means a larger fixed payment that has to be carried through slow months.

Before a Minnesota salon loan is sized, the study should test demand in the specific neighbourhood: households within a short drive, the competing salons and suites, and the price point the location supports. Minnesota cost estimates should split build-out from equipment and working capital, since a lease-based salon has little real estate to fall back on. Debt service coverage should be shown at realistic chair occupancy rather than full books. If the loan also buys a building, test the appraisal against values for general retail, because a lender will judge the space on its uses beyond a salon. The data attaches no coding caveat to salons in Minnesota. One reading note: SBA lists each loan under its current holder, so a Minnesota loan sold on after closing appears under the buyer's name.