Securing Funds for Your New Gym
For any business to be successful, having the proper funds to get started and for ongoing business is a priority. All new gyms, from smaller personal training studios with individual client sessions to full scale coed gyms with thousands of members and group fitness classes, spinning classes and more share the common need for sufficient funding. Fortunately, for the prospective new gym owner, there are many avenues to pursue to acquire the funds needed to open and run a successful new gym.
This article will give you a breakdown of the main sources of funding for your new gym as well as the pros and cons of each. Using this list, you will be able to determine which source or sources are best for your particular situation and then start pursuing them to secure the funds that you need to open your new gym. Once you have your funds secured and your building in place, your New Gym Specialist will be able to create a Custom Gym Equipment Package tailored to meet your specific needs.
If you have the funds available, the least expensive way to open your new gym is always to pay for your equipment without using another source. Paying with your own funds allows you to be clear of monthly payments and, more importantly, interest rates. Although your initial up front expenditure is higher, by using your own funds and not another source’s, you end up saving money over the long run by not paying interest on your purchase.
The least expensive way to pay for your equipment.
Your equipment is paid for and out of the way.
No payments are hanging over your head while you focus on operating your gym.
Not always feasible.
People who don’t have access to all of the funds to purchase their equipment, (or prefer not to use them), often tie in with an investor who supplies the funds while not being otherwise involved in the day to day operations of the business. This allows you to save on your upfront capital expenditure while still keeping clear of any additional charges associated with going through a bank or another lending source. An investor will generally expect to make a return on their investment, but often the terms will be much less defined and stringent than a formal institution’s will be. An investor may also be willing to work with you during off peak months where membership enrollment is somewhat less so that you can pay back on the investment at a more comfortable rate of payment.
WHO IS YOUR IDEAL INVESTOR?
Investors come in a variety of ways. A family member may want to help you out with little or no interest needed paid back to them. A friend or business associate may be looking for a place to allocate money at a small rate of return on their investment. A successful business person in the community may have an interest in seeing new development and want to invest in the growth of the community or in the overall health and wellness that your new gym will bring to residents. These are just some examples of potential investors for a new gym.
Choosing the right investor is extremely important to your long term success as a gym owner. Because you are excited about realizing your dream of owning your own gym, it can be easy to accept funds from any source who is willing to give them to you. As tempting as this may be, do NOT fall into the trap of accepting funds from any person or entity before you carefully examine and agree with the terms that the prospective investor is asking for.
Remember that, just as you are trying to get an investor to choose to invest in you and your gym, you are also choosing whether or not a particular investor is the right person for you.
The ideal investor is someone who knows you personally or, if you have partners, someone who at least knows one of your partners personally. They will be someone who believes not only in your gym concept for your area, but in you personally. This is important because it establishes a relationship between you and your investor that will allow them to invest more money into your new gym at the outset.
People often mistakenly believe that, just because someone has money, they will be a great investor. In reality, some people have money because they keep it and have no interest in investing because they don’t want to take on a risk with their capital. The right investor is someone who has the funds, shares your vision, believes in you and is willing to step up and help you to realize your dream.
You can always have more than one investor, but keep in mind that each investor will want something in return for their investment and you don’t want to end up owning your gym and giving all of your profits away to different investors.
You can set it up in the manner that works best for both you and your investor.
Generally there is a minimal interest rate or the investor just gets a small % of your business profits.
You have a source to go to for additional support if you need it when your business grows.
You are working with someone who believes in you and in what you are trying to do.
You have to make sure that you tie in with someone whom you want to be with for both the short term and long term.
A business plan with future projections to present to the investor is generally required.
The investment agreement needs to be detailed so that each party knows exactly what their part is.
For the purposes of this article, a partner is someone who is responsible for the funding of your new gym. There are 2 types of partners – Silent and Working. A Silent Partner is someone who provides the money for your business start up and, in return, gets a percentage of your business profits on a repeat basis. Their part of the partnership is solely as a funding source and they have no say in the day to day operations of your gym. A Silent Partner falls into the category of Investor as described in section 2 of this article.
A Working Partner is someone who provides the funds for your gym and also is involved to some degree with decision making and/or day to day operations. They are part owners of the gym in every sense of the word. Often, people who dream of opening their own gym will partner with someone who is primarily responsible for the funds while they are primarily responsible for management and training of members. Each partner brings their own skill set to the partnership, thereby allowing for a knowledgeable and experienced person to be at the helm of that part of the business operation. This type of partnership works extremely well because each partner is doing what they do best while not interfering with the duties of the other partner.
You can have more than one partner, but since each partner generally has an equal stake in the business, your personal profits will be less with each additional partner. This, however, can be offset if your partners help to grow your business to the point where you are making significantly more profits than you could alone or if your business grows to where you need a larger or second location.
You are generally dealing with someone whom you already have a good relationship with.
Each partner has distinct roles in the operation of your new gym so that there is no confusion.
You have someone to exchange ideas with and to rely upon.
Your profits are less than with a sole ownership.
The wrong partner can be a headache to work with because their ideas will not match yours, causing your business development to be hampered.
A very common way for people who do not have the funds in hand to start a new gym is to get a bank loan. The best place to go for a bank loan for starting your new gym is your local bank. This is because they already know you and have an interest in getting more business from you. Also, a local bank has an interest in the development of the local community and, therefore, will be interested in the business that you are looking to bring to the community.
If you are interested in looking into a bank loan, the first thing that you should do is to get to know the bank manager at your local bank where you presently do your banking. Developing a relationship where the manager knows you makes it much easier for you to discuss your funding needs for your new gym when the time comes for you to do that.
A standard bank loan for a small business will usually have a lower interest rate than other forms of institutional loans. A bank will require a professional business plan to accompany your loan request because the bank will want to evaluate the potential success of your new gym. You will need to include at least 3 years’ worth of projections for your new gym. This is something that your New Gym Specialist can help you with.
A bank may also require further documents such as your personal tax returns and want collateral to secure against your loan.
Lower interest rate than other forms of conventional loans.
A business partner is generally not needed.
It is a pretty straightforward, simple process to secure your funds.
You will need a detailed business plan and other documents to present to the bank.
You may need collateral against the loan.
SBA (SMALL BUSINESS ADMINISTRATION) LOAN
To help entrepreneurs and others to establish their own business, the Small Business Administration offers loans direct from the government. Due to government regulations, these loans are much easier to get if the owner is a woman, considered a minority or is considered disabled. Still, even if you do not fit into an SBA preferred category, it may be worth looking into if you are in the very early stages of opening your new gym.
An SBA loan often takes longer to get approved for than a conventional non-government loan so, if you are on a time line to open your new gym because of a building’s availability or other reason, you will want to ask your SBA representative what the actual time frame is prior to filling out paperwork.
The SBA has offered a “Fast Track” program in the past where you can get your loan approved much quicker than the standard time. If you are interested in checking into an SBA loan, you should ask your SBA representative if this program is currently available.
If you qualify, this can be a relatively affordable funding source with respect to the interest rate.
Not everyone qualifies, as this is based upon government qualifying standards.
It can take much longer to get approved than other types of loans.
In the fitness industry the term “leasing” refers to financing-to-own. Leasing is another type of loan that requires much less documentation than a conventional bank loan. Upon receipt of a very simple lease application, the leasing company will company will run a credit check to determine what amount you qualify for. This determination is based on your credit history, current FICA score and other factors that demonstrate credit stability.
If your personal credit score or credit history isn’t to the level where you qualify for the amount that you are looking to lease, a cosigner with a higher credit score can be used to secure the lease. can be used to secure the lease. You can also lease a lesser amount that you qualify for on your own.
Unlike a bank loan, leasing does NOT require a business plan, a lot of documentation or collateral against the loan. Leasing is a very simple process that can be done in a very short amount of time.
For commercial fitness equipment, leases, like bank loans, usually run from 2 to 5 years, with a 3 year term being the most common. A lease will require only 2 monthly payments up front and a nominal origination fee, after which you pay monthly payments to the funding sources. A lease is a Term Loan, meaning that, even if you pay it off early, you must pay the full amount including the full interest attached to the lease.
Besides the ease of getting funds with a lease if you qualify, there tax advantages with leasing that you do not get with a bank loan. However, a bank usually offers a lower interest rate than what you will get with a lease.
NOTE: Leasing is NOT renting your equipment. It is similar to a conventional loan, but with different advantages and disadvantages. At the end of the lease term, you own your equipment.
Very simple application process based upon your credit score.
Tax write off advantages.
Requires a minimal up front down payment to qualify.
Easier to qualify for than many other types of business loans.
Fast processing time.
A high credit score with a stable credit history is usually required.
Higher interest rate.
You can’t pay it off early and drop the additional interest.
You may need to pay different lending sources individually on a monthly basis.
DIRECT PAY / LEASING HYBRID
Perhaps the most attractive of all funding options is the Direct Pay / Leasing Hybrid. With this, you direct pay a certain amount upfront and lease the balance. You determine the amount that you want to direct pay. This allows you to drop your monthly lease payments down to where you are comfortable while you still save on some of your up front capital. This form of fund procurement requires that you have a certain amount of funds available to pay in order to bring your lease payment down. It gives you control over what you pay monthly for your lease payments.
This method decreases your monthly lease payment to a level where you may be more comfortable while still giving you the tax advantages of leasing.
Lets you have control over what your monthly lease payment will be.
There is still interest involved with the amount that you are leasing.
You still need to qualify for the amount that you are leasing.
Whether paying out of pocket, involving an investor or a partner, or taking a loan or a lease, there are many ways to secure your funds so that you can open your new gym. With careful consideration on the various methods, you will hone in on which one is the best for you. Your New Gym Specialist will be able to help you further with questions that you may have.
Written by Bill at BAMPSCO International Inc. / Gymstarters