In today’s tanning industry, equipment financing is perhaps more important than ever. Back in the day, salon pros typically equipped their facilities with relatively inexpensive basic tanning systems; but to stay competitive in the marketplace, salons must now offer different tanning levels, as well as sunless options, and these sophisticated machines cost money! Add to that the inherent difficulties for salon pros seeking bank financing – it’s a hard sell because when it comes to collateral, banks favor cars and real estate over tanning equipment. The solution: financing.

There’s a rich history in how equipment financing entered the indoor tanning industry. One of the earliest pioneers was Karen Meade Bentlage, Future Industries, Inc. President. In the late 1980s, she offered Joe Bommarito’s innovative Hex stand-up tanning booths through a unique profit-sharing program by which salon pros paid for the unit by the number of hours it was used. It wasn’t long before her idea inspired Gene Charette, CEO of Creative Marketing Concepts – makers of Sun Capsule booths – to expand on it. His profit sharing concept allowed ownership of the financed units, and he customized a program to fit each salon owner’s needs. That flexible leasing arrangement became the basis for Sun Capsule’s popular “Flex Plan” still offered today. From these beginnings, equipment financing has certainly grown.

Similar to buying a car, there are many options when it comes to equipment financing. From the profit sharing programs that started the financing boom to lease-to-own programs, salon pros have many alternatives – and providers – to choose from. Here’s a look at what some top financing companies offer.

Creative Marketing Concepts/Sun Capsule
Gene Charette, CEO of Creative Marketing Concepts, is an equipment-financing pioneer, creating his “Flex Plan” in 1997. Since then, CMC has added many incentives to improve upon its already successful program. “We’ve added no money down, zero percent financing and low-interest conventional financing, whatever best suits our customers,” explained Gene. “The salon owner uses our capital on a pay-as-you-go basis, so they can offer an ultra high-performance tanning machine without the risks normally associated with such an investment. Plus, we make every effort to give salon owners exclusivity in their market during the lease term, by not placing the same model in close proximity to their salon.” CMC boasts more than 3,000 salon pros who have utilized its Flex Plan program, many of them repeat customers.

Future Industries, Inc./Original Dr. Müller
One of the first to offer equipment financing, Future Industries, Inc./Original Dr. Müller continues to improve its programs. Today, the distributor offers an EZ-Pay program, which allows salon pros to make a profit on the financed unit while working toward ownership. “It works quite simply,” explained Louis DiGioia, Future Industries Salon Consultant. “Salon pros choose from an array of available units, make a small down payment and meet an hourly usage requirement spread over multiple seasons – typically 600-800 hours, depending on the unit. We charge on a per session basis, and once the unit is paid off, the salon pro owns it. The best part is that during the course of the program, all lamp changes are included.”

Highline Capital
Last February, Highline Capital’s 27 years of finance expertise became available to tanning pros when the company added industry veteran Terri Franssen as VP of Vendor & Franchise Development. This allowed Highline to quickly acclimate to the market and provide a new level of financing. “It’s important to note that Highline Capital is a direct lending institution with unlimited financial ability to assist new and current salon owners with equipment purchases; we’re not a broker,” Frannsen explained. “We can make quick decisions, because we don’t rely on a bank or other lender. Broker transactions require final approval from a bank or other lender, and they earn a living by adding points onto the bank or lending institution’s rate. We can respond to transactions of less than $75,000 within the hour, and for higher amounts, we usually get back within 24 hours.”

JK Capital, Inc.
JK Capital understands that as salon owners strategize to beat their competitors, equipment acquisition often plays a huge part in that strategy. To that end, they designed a program that allows salons to preserve capital for the inevitable seasonality of the industry, which allows them to maximize the benefits of the manufacturer/finance company relationship.

“By forming a unified approach to equipment acquisition, we’ve offered solid financing solutions to salon owners since 2002 by originating over $30 million in new equipment leasing,” said John C. Deacon, Manager of Finance & Leasing-USA, JK Capital, Inc., A Wholly Owned Subsidiary of JK North America, Inc. “Our experienced financial team provides more options, greater efficiency and productive use of internal capital, which are critical components of finance. We also understand that the competitive cost of a lease, with its impact on cash flow, equity, reserves, profitability, and balance sheet management, will ultimately determine the salon’s financial success.”

New developments at JK Capital will lead to even more benefits for the company’s salon clients. A recent $20 million bank deal executed between JK Capital and Bayerische Hypo und-Veriensbank AG, will provide more capital to fund increasing demand for JK’s leasing to U.S. salon pros. “This critical component offers the luxury of internal underwriting for us without paying the fees and commissions of third-party lease brokers, and gives applicants more leasing options,” Deacon commented. “We can also offer operating leases that translate into lower monthly payments with a purchase option residual that gives salon owners more flexibility when looking at competitive pressures in the marketplace.”

There’s Always the Bank …
Remember, you can always try your local bank to finance future equipment purchases; but remember, this might be difficult. Most banks aren’t willing to give loans for tanning equipment, especially if you use it as collateral. Unlike cars or property, it’s difficult for banks to judge the true value of tanning units, especially considering depreciation and the industry’s seasonal nature. Sure, some larger salon chains and franchise operations can usually obtain a bank loan, but that’s only after they’ve built a reputation after many years in business. For newer salon pros, or owners of smaller, family-owned stores, this option could be much less viable. It’s a good thing the tanning industry provides so many intriguing financing options!

Things to Think About

by John P. Ribner

When it comes to equipment financing, there’s a lot to think about. Thankfully, many of the industry’s top financing companies are willing to give you some free advice!

Get Out Your Calculator
When considering financing options, the old saying “Caveat Emptor,” or “buyer beware,” often applies. “If you are leasing, you need to look at all of the costs including the interest rate, usage fees, early termination fees and residual value,” said David Barnitt, Attract Capital, LLC President. “This is known as the total cost of ownership. The financial cost of ownership is not just what you pay upfront on a monthly basis, but also what you are accruing and will have to pay either to buy the equipment outright or get out of the lease. Some of these leases have resulted in total costs of 50 percent or more per annum to the salon pro, which is the type of deal to avoid because it’s not market based.”

Attract Capital warns salon pros to be especially mindful of leasing rates. “These rates should reflect your creditworthiness and the ability of the equipment to hold its resale value,” Barnitt explained. “If you have good credit and the equipment’s value is stable, you shouldn’t have to pay high rates; the rate should reflect a slight premium to a market rate of interest (such as prime) to account for your credit risk, in addition to a premium related to the resale value risk. The combined rate for the lease reflecting all of the total cost of ownership should not exceed 20 percent, and in many instances, should be in the low teens.” Barnitt cautions that if salon pros are looking at rates much higher than that, it may be best for them to consider borrowing from a finance company or mezzanine lender.

Weigh the Pros/Cons
Before making any decisions, Creative Marketing Concepts says salon pros should weigh the advantages and disadvantages of leasing. “They must ask themselves, ‘If I use the leasing company’s money, can I put the money that I was going to spend on equipment to better use?’” said Gene Charette, Creative Marketing Concepts CEO. “The answer will depend on many variables, such as what will you pay for interest over the lease term? Could you use the money to promote your salon, either by advertising or remodeling? Could you put the money to work somewhere else that would give you a better return than if you were to buy the equipment outright? There’s a lot to consider.”

Be Careful
The process of buying a new tanning system can be not only time consuming, but also overwhelming…so many choices! That’s why Future Industries, Inc./The Original Dr. Müller recommends salon pros read their contracts, understand the buyout parameters and convert the money factor to reflect the actual interest rate.

“Salon owners should be very careful when selecting a leasing or payment program,” said Louis DiGioia, Future Industries Salon Consultant. “Certain types of buyouts, such as ‘fair market value,’ could leave the owner at the mercy of the financer’s adjusters and their view of fair market value. Buyouts that are left to interpretation at the time of program end should probably be avoided. Another issue to consider is the lender’s viewpoint as to the status of the business; i.e.; is your salon going to be considered a ‘start-up?’ These salons are usually subject to much higher interest rates or money factors (money factors are interest rates that are converted for the purpose of lease payment calculation) that can be as much as 15-25 percent.”

Do Your Homework
The folks at Highline Capital say that equipment financing presents many issues for salon pros to consider. “Get a quote from every leasing company, financial institution or local bank prior to filling out any type of application,” cautioned Terri Franssen. “Also, ask a lot of questions, and do your homework. Ask every potential lender the important questions: how you will be qualified, what fees are involved, what types of programs are offered and what information will be needed to apply, such as tax returns, personal financial info, etc.”

Highline also cautions against using a home or personal property as collateral. “It’s not a good idea to place your house or personal property on the line for any business venture,” Franssen said. “If you utilize your home and your business fails, you may just lose your family’s roof for a seemingly good interest rate.”

Don’t Assume
When acquiring tanning equipment, JK Capital says salon pros must be aware of the issues that come with each avenue – bank financing, leasing and equity financing. “When it comes to bank financing, salon pros will need to know all the terms and conditions of the loan, especially the collateral required and the time involved in getting a decision,” said John C. Deacon. “Many bankers are hesitant about tanning beds as collateral, so they will ask for additional security. Also, SBA-backed loans take additional time to process.”

Salon pros shouldn’t assume that all leases are alike, warns Deacon. “The critical lease components are the advanced payment (or security deposit), how it affects the calculations, term, residual (especially the residual and the options that go with it) and, of course, the yield or lease factor,” he explained. “You need to know all the requirements as they pertain to insurance, taxes, early payoff, etc. Get full disclosure on all issues, and if you don’t understand it, ask questions.”

Equity financing typically refers to purchasing through personal savings or a personal loan from a family member or acquaintance. “It’s imperative that you understand the seasonality of the industry and the effects it has on your cash flow,” Deacon commented. “Financial strategy will dictate how much of your own capital you can justify for equipment acquisition, and how much to keep in reserve. With family or acquaintance financing, it’s absolutely necessary to draw up formal documents for the promissory note and security interest. You can’t afford a misunderstanding when it comes to repayment.”

Happy Shopping!
As you can see from all the valuable information we’ve compiled from the industry’s top financing corporations, you should have everything you need to start shopping for that new sunbed, booth or sunless system. Good luck!