Exploring Your Fitness Business Financing Options
Fitness businesses have a bright outlook in today’s health-conscious world. But opening a fitness business in the hopes of cashing in on the boom is no small investment. The good news? Aspiring fitness business operators, as well as those thinking of expanding or upgrading their current operations, have several options. Here’s a closer look at four potential financing avenues for fitness businesses.
1. The SBA 7(a) Loan
If you’re financing a larger operation, the Small Business Administration (SBA) 7(a) loan may be a good fit. Providing loans of $350,000 or more with a maximum loan amount of $5 million, 7(a) loans cover between 70 to 90 percent of total project costs. This may include location buildout, equipment, inventory, deposits, organization costs, franchise fees and operating working capital. An SBA 7(a) loan may also be a good fit for fitness businesses seeking to acquire real estate, as the SBA will finance up to 90 percent of the cost.
In order to qualify for an SBA 7(a) loan you’ll need good personal credit, as well as proof of your industry experience and/or transferable management skills. Business assets act as collateral, although additional collateral may be required. The loan repayment period for the SBA 7(a) loan is 10 years with prepayment penalties of between one and four percent over the initial term period. For all SBA 7(a) loans, expect to provide an equity injection between 10 to 30 percent of the project costs -- these funds cannot be borrowed -- as well as closing costs of approximately three percent of the loan amount.
The best part? Not only are SBA 7(a) loans nearly unlimited in terms of how you use the funds for your fitness business operation, but because they’re backed by the SBA they offer the lowest available APR.
2. The SBA Express Loan
Need less than $350,000? SBA Express loans comprise flexible financing that can be used for commercial real estate loans, working capital loans, or lines of credit. The application process is simpler than for SBA 7(a) Loan and is also accompanied by an accelerated turnaround time: Once your lender submits the loan application to the SBA for approval, a response is typically received within 36 hours. Funding time ranges between 45 and 90 days with most lenders.
One particularly appealing type of SBA Express Loan for fitness businesses which might be short on positive cash flow? The SBA Express Working Capital Loan, which is available for loans of up to $150,000.
3. Leasing to Own (Capital Leases)
For many fitness business owners, the outright purchase of fitness equipment is cost prohibitive. This is one of the things that make financing the purchase of equipment, including everything from machines to outdoor signage, a valuable option. As owner, you’ll be required to personally guarantee the equipment lease with a required down payment of up to 20 percent of the amount financed. Payments are tax deductible, however, so you’ll incur lower taxable income and therefore tax liability.
Keep in mind that leasing fitness equipment isn’t right for every fitness business. Learn more about the benefits of leasing equipment versus buying it out right here.
4. Presales, Bartering, and Crowdsourcing
While the first three options listed here may be the most common options for fitness financing, there are other options as well, including presales, bartering, and crowdsourcing.
UsersThink CEO and founder John Turner told IDEAFit of the benefits of exploring alternate approaches, such as presales, “Presales can be an especially powerful option for those with limited financial resources but a fair amount of social or online reach. So those with large social networks, large newsletter lists or websites with a good amount of SEO benefits could test the waters with preorders on their own site, then promote the offer further and qualify it by saying that only a limited number of spots are being created or a limited number of items are available...It’s also worth considering if you already have a fair amount of clout and reach.”
One last thing to keep in mind? Getting your fitness business up and running is only part of the equation, you also have to sustain it through effective fitness marketing strategies. Fitness monitoring technology can be a membership-boosting selling point in today’s connected world. Request a demo today to learn what Accurofit can do for you.