Club Insider

A Perfect Financing Combination

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Paul BosleyPaul Bosley

When an entrepreneur is first considering a new project, various financing options are usually considered and the most appropriate financing product is chosen. For example, an equipment lease is often chosen for financing new fitness equipment. Another example is when an entire new club is financed using a bank loan or an SBA 7(a) loan. It is very unusual when two financing products are complementary and can be selected to finance the same project. With the introduction of the SBA Express Loan, this is no longer the case when renovating or expanding an existing fitness center or when launching a new fitness center. An SBA Express Loan works very well with an equipment lease for financing a new project or an expansion.

In 2014, the Small Business Administration (SBA) introduced the Small Loan Advantage Loan Program, often referred to as the SBA Express Loan. After the recent financial crisis, often referred to as "The Great Recession," many homeowners lost their real estate equity, which is used as collateral requirement for an SBA 7(a) loan approval in most cases. Consequently, many perspective borrowers were unable to secure financing because they lacked the equity in their home required to collateralize their loan request. The SBA Express loan caps the loan request amount at $150,000 to limit the risk since real estate collateral is not required. Instead, the business assets are used to collateralize the SBA Express loan, and the main approval requirement is a good personal credit and some liquid assets.

Since the collateral used to secure an equipment lease is the equipment being financed, and the collateral for the SBA Express Loan is the other business asset, these two debt-financing products are fully compatible! Furthermore, since the underlying concept of the SBA Express Loan is to provide working capital, financing the equipment needed to run the business provides the club owner more working capital so the underlying reason that both products exist is exactly the same.

Capital Leases: Leasing Equipment to Own

The most common financing option traditionally available in the fitness industry is equipment leasing. The cost of purchasing the fitness equipment has risen over the years as manufacturing costs have increased and as technology and entertainment options have been introduced. Most major fitness equipment manufacturers employ full-time leasing professionals who manage the financing process with major banks and lessors with the goal of increasing sales by providing financing options to their perspective buyers. Nearly all fitness equipment manufacturers are aligned with a variety of leasing companies who actively compete for the leasing business that is generated on a consistent basis by the fitness industry.

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