By: Paul Bosley
When an entrepreneur is rst considering a new project, various nancing options are usually considered and the most appropriate nancing product is chosen. For example, an equipment lease is often chosen for nancing new tness equipment. Another example is when an entire new club is nanced using
a bank loan or an SBA 7(a) loan.
It is
very unusual when two nancing products are complementary and can be selected to nance the same project. With the introduction of the SBA Express Loan, this is no longer the case when renovating or expanding an existing tness center or when launching a new tness center. An SBA Express Loan works very well with an equipment lease for nancing 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 nancial 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 nancing 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 nanced, and the collateral for the SBA Express Loan is the other business asset, these two debt- nancing products are fully compatible! Furthermore, since the underlying concept of the SBA Express Loan is to provide working capital, nancing 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 nancing option traditionally available in the tness industry is equipment leasing. The cost of purchasing the tness equipment has risen over the years as manufacturing costs have increased and as technology and entertainment options have been introduced. Most major tness equipment manufacturers employ full-time leasing professionals who manage the nancing process with major banks and lessors with the goal of increasing sales by providing nancing options to their perspective buyers. Nearly all tness 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 tness industry. The main purpose of a capital lease
is to nance the equipment purchase while preserving the owner’s working capital. Club owners can nance the purchase of strength and cardio equipment, security systems, computer hardware and software, ooring, outdoor signage and other tangible items needed to run the business using an equipment lease. The tness and non- tness equipment being nanced is the collateral for the equipment lease. The owner(s) are required to personally
Small Business Administration (SBA) Express Working Capital Loan
This government-backed loan is designed to provide working capital ranging from $20,000 up to $150,000 for start-ups and existing businesses. The main purpose of this loan is to provide the funds necessary to support the company until the business generates positive cash ow. The loan process takes 60 - 90 days to complete on average before the loan is funded. The SBA loan process does require an attention to detail in order to complete the application and contingency requirements. If the use of the loan funds is to nance a new location, the loan can be approved in advance; however, the bank will not distribute the funds until the new location has received a certi cate of occupancy. This insures that the money will be used to operate the new business and will not be used to pay for build-out expenses. The interest rate for this loan is calculated by starting with the prime rate as published in the Wall Street Journal, which is currently 3.5% range. The bank charges a 2.75% risk premium on this loan, so the interest rate will be at least 6.25% at this time. This is a variable rate loan that changes quarterly when the Federal Board (See Paul Bosley Page 24)
Paul Bosley
guarantee equipment leases until the business is established and pro table over many years.
The required down payment ranges from one lease payment to 20% of the amount nanced. Lease documentation fees range from $95 to $495. Repayment terms typically range from 12 months up to 60 months and are tax deductible so the payments will lower taxable income, and in turn, tax liability. Since most owners plan to keep the equipment long term, they choose a capital lease with an end-of-term purchase for $1.00. In short, an equipment lease is used to purchase the equipment needed to manage the tness center.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32