Loans for Fitness Franchises: Tips to Choose the Right Funding for Long-Term Success

Types of Funding for Fitness Franchises

Not all business loans are the same. There are a variety of loan products, some of which are tailored for specific purchases, like equipment or commercial real estate, while others are more general. It’s important to understand your options so you can pick the right fitness franchise financing options to support long-term funding strategies for gyms.

SBA Loans

The U.S. Small Business Administration (SBA) offers several loan programs that can support franchisees. The SBA doesn’t loan directly, but it works with approved lenders to partially guarantee the loan, which lowers the risk to both the lender and borrower.

The most common among these options is the 7(a) loan program. 7(a) loans offer competitive interest rates, low down payments, and long repayment terms on loans. Fitness businesses can use these loans for equipment purchases, marketing, staffing, working capital, and virtually any other business expense. They can be a core part of long-term funding strategies for gyms.

Term Loans

Traditional term loans provide a lump sum upfront in exchange for monthly payments to be made through a loan term. These loans may be used for a single major purchase or as a flexible amount to cover a range of business needs.

Term loans are available from both traditional financial institutions, like banks and credit unions, and online lenders. Traditional lenders tend to offer lower interest rates and higher loan amounts but have stricter eligibility requirements and longer application and underwriting periods.

Equipment Financing

A gym is only as good as its equipment. Treadmills, rowers, weight racks, and modern fitness tech are all very expensive. With equipment financing, you use the machines as collateral for the loan, meaning the lender may take the equipment if you fail to repay the loan. Equipment financing typically offers fast decisions and competitive interest rates that let you preserve your cash flow while making payments on essential business items.

Business Line of Credit

A business line of credit is a flexible financing solution that works a bit like a loan, and a bit like a credit card. With a line of credit, you’re approved for a fixed credit line. However, you only pay interest on the amount you withdraw, so when you use line to credit to make purchases, the interest payment is lower than it would be on the full loan amount. Most lines of credit are revolving, so when you repay what you’ve borrowed, you’ll have access to the full loan amount again.

A line of credit is a crucial part of long-term funding strategies for gyms because it acts as a safety net. You can lean on it for working capital when your financial situation is a little bumpy. You can use it to buy high-quality new equipment or switch gym management software when you expect to have an increase in cash flow soon. It’s an invaluable tool to stay flexible and ready for anything.

The Importance of Loan Structure

Many business owners seek the lowest interest rate they can possibly get. While low interest is certainly worth pursuing, it can also be an issue if the repayment terms are too tight.

In the fitness world, cash flow is king. You need cash to meet changing operating costs every month, and low monthly payments help protect your cash flow. The longest term possible can help keep your business stable, making it a key pillar of long-term funding strategies for gyms. You can always pay off a loan early, but it may be harder to lower the monthly payment once the deal is signed.

Considerations for Long-Term Funding Strategies for Gyms

It may be in your best interest to use more than one type of funding. Ultimately, it just depends on your goals.

Flexibility and Scalability

Are you planning to own just one franchise? Or do you want five? Your first loan should set the stage for your second. This is where long-term funding strategies for gyms become truly strategic.

If you plan to scale in the future, tell your lender. Some may offer “development lines of credit,” which allow you to draw money from an approved credit line to fund the startup costs for each new location. Because you’re already a customer with the bank, this can streamline the process when you apply for financing in the future.

Another important consideration is that gyms are not recession resistant. If the economy changes, interest rates may change, too. When this happens, you may be able to refinance to lower your borrowing costs. Refinancing is a great way to improve your long-term funding strategies for gyms.

Pre-Opening Periods

You still have high costs before the gym doors open. You’ll have to pay rent, you may have to pay for leasehold improvements, and you may already have some staff on payroll. Yet, you have no paying members.

In this case, you might consider an interest-only period on a loan. This means you only pay the interest for the first few months of a loan, rather than the principal. This keeps your costs low while you build out the gym. Successful long-term funding strategies for gyms should include interest-only periods to protect your cash until you’re actually making money.

Eligibility Requirements for a Business Loan

Although franchises are more stable business opportunities than starting from scratch, lenders will still scrutinize both aspiring and current gym owners who apply for loans. Your personal financial health is an important consideration in any loan application process.

Eligibility requirements vary by lender, but generally, they’ll review:

• Credit score: Your credit score reflects how safe you are as a borrower. A strong credit history can help grow your score, and the higher your score, the more likely you are to qualify for lower interest rates and longer repayment terms.

• Liquidity: Lenders want to see that you have cash in the bank after the down payment. This shows you can handle an emergency.

• Collateral: Many loans may require collateral to secure the loan. With certain loans, the asset purchased with the loan serves as collateral. With more general loans, you may have to provide personal collateral, like home equity or other investments.

How to Apply for Funding

Every lender has its own application process, but the general practice remains the same. When you’re ready to apply, you need a professional application package that sells yourself and your vision, including your long-term funding strategies for gyms. Your application should include:

1. Business plan: Explain why this franchise will work in your specific neighborhood and why you’re qualified to run it. This is a good place to disclose financial projections and your long-term funding strategies for gyms.

2. Franchise Disclosure Document (FDD): This shows the lender the strength of the brand.

3. Financial statements: If you already own a gym or a franchise, it’s useful to show past performance to help secure funding for a new gym. Otherwise, you should show personal financial statements and tax returns.

Presenting a clear plan to the lender is the first step in executing long-term funding strategies for gyms. It shows you know how to repay the lender and aim to be a partner for years to come, not just a borrower.

Final Thoughts

The right loan for opening a fitness franchise is about more than just numbers. It can be a major first step towards long-term funding strategies for gyms that will help you grow your business empire.

Take your time to compare different lenders and the total cost of borrowing. A lender can be a long-term partner, especially if you hope to acquire additional franchises in the future. With the right funding, you can build a profitable business now that scales into the future.