Your Guide to Fitness Equipment Financing

For Gym Operators

Your Guide to Fitness Equipment Financing

If you’re either expanding your existing gym business, or perhaps planning to open your first fitness club, gym equipment financing will always be a key factor in making your vision a reality. During the past 30 years, Precor has built up a wealth of experience in securing finance solutions across the globe. This guide shares our experience with you, to help you make the best possible financial decision for your business.

What are the common equipment financing options?

How you finance your new or existing gym business needs careful consideration and should be viewed as a strategic decision, in the same way that you decide on things such as your location, your target market, and your membership fees.

It’s important to recognize that every business is different, so the right options for you will be based on your individual circumstances. Below are some common funding choices available to you:

1. Purchasing equipment using your own cash resources

Paying for fitness equipment upfront with cash is one way to quickly invest in new equipment without drawing out payments for years to come. However, it could mean that you’re without significant working capital down the line if unforeseen issues or costs were to arise. Using cash or financing is a decision that each individual owner will have to make based upon their circumstances. 

2. Purchasing equipment using equity raised from investors

An alternative to self-funding equipment purchases is to use money raised from investors. Again, this means that you may be tying up the company’s valuable cash resources in assets.

Equity may be more expensive than bank debt and can dilute your investment and control of your business. As a business owner you will have to decide if this is the best option for your business.

3. Taking out a loan

Bank loans are a popular and viable alternative for business funding. Borrowing rates can sometimes be attractive and you own the gym equipment from day one. However, there may be some drawbacks:

  • It can sometimes be difficult to find a bank willing to lend in the current financial climate.
  • The application process can be lengthy.
  • Prior business history may be a pre-requisite.
  • The loan may be conditional on committing all of your banking needs to that bank.
  • The bank may require additional security.

Some business owners prefer to keep any bank funding lines available for other financing needs, such as providing working capital, or funding installation costs.

Aside from traditional bank loans, the internet is changing the way we do everything, and accessing debt finance is no different. New financing options are being created that may provide unique and attractive options for your business. Examples include crowd funding or crowd investing. Although still in their infancy, these options can offer alternative solutions for some businesses.

4. Leasing

Equipment leasing is also a very commonly used method of funding. Although similar to bank loans, equipment leases have some advantages that may be beneficial to business owners. 

Why lease gym equipment?

Many businesses choose to lease gym equipment for the following reasons. 

  • It is often easier to obtain an approval.
  • It provides the ability to spread the cost over time. 
  • It may free up capital for use in other areas of the business. 
  • Interest rates are very competitive and fixed throughout the length of the term.
  • There may be tax advantages based upon your business structure. (Note: always consult your tax professional.) 

Leasing comes in many forms.

There are multiple types of equipment leases:

  • Capital Leases – This is the most common form of financing in the fitness industry. The equipment purchase amount is financed over the term. The business owns the equipment at the end of the term. Term lengths usually range from 1-5 years. 
  • Fair market value/ residual leases – This structure is less common in the fitness industry.  They are often used by large institutions such as universities, YMCA groups, etc. There is always some form of balloon payment due at the end of the lease term to own the equipment. There may be tax advantages for certain business structures. 
  • Rental Leases – True rental leases are extremely rare in the fitness industry.  Most financial companies will not provide this type of financing.

What is typically required when you apply for finance?

Every finance company has their specific list of information they require to obtain an approval. Below is a list of the most common information that is commonly required to obtain financing. 

Information requirements for a new business (or a business that is less than 2 years old):

  • A detailed business plan (including financial projections)
  • 2 years of tax returns on all owners
  • 2 years of tax returns on existing business (if applicable)
  • Source and use of funds statement (i.e. where money is coming from and what it will be spent on)
  • Personal financial statements and biographies of key personnel
  • Bank statements, investment account statements, etc. 

Information requirements for existing business (over 2 years in business):

  • 2 years of tax returns on business
  • 2 years of full financial statements (audited if available)
  • 2 years of tax returns on all owners
  • Personal financial statements on all owners

10 tips for getting the very best financing deal

How much does it truly cost to finance gym equipment? What does a good deal look like? Sometimes it can be difficult to tell, but here are ten key pieces of financing advice:

  1. Ensure you compare all costs, such as the interest rate, the length of the deal, the total cost to be repaid, and the end-of-term conditions (covered below).
  2. Also ensure you’re fully aware of all of the payments you are obligated to make, including monthly rental, up-front payments, administration fees, etc. You want to have a full and clear perspective of what you’re committing to.
  3. Be fully aware of the cost of ownership over the lifetime of the equipment. For example, remember that the responsibility for equipment maintenance remains with you when any warranty expires, so if a treadmill breaks down, or an elliptical needs servicing in later years, you’ll need to budget for this cost.
  4. Always clarify with the finance company whether you’re being provided with a “pre-approval quote” or actual terms based upon their final approval.  Do not rely on the terms of a “pre-approval quote” to be accurate. 
  5. Don’t agree to a period that’s longer than you’re comfortable with. Terminating a finance agreement early can be costly, so ensure the term fits your business needs. 
  6. You should ask for a copy of any quoted terms and conditions and read these carefully. Small clauses can have a big impact on your business in years to come, so it’s vital that you always read the small print.
  7. Although it’s a cliché, if the deal sounds too good to be true, it probably is
  8. There may be tax advantages or disadvantages based upon your financing structure. Always check with your tax professional.   
  9. Be prepared to provide all financial documents and information required for an approval. This will help provide a quick and efficient experience for you and your finance company. 
  10. Finally, ensure you understand the end-of-term options. Different finance structures have different options. Be very clear as to what your contract says and the options you may have. 

How can Precor help?

Precor has a long and successful history of sourcing some of the very best gym equipment financing packages in the market, and helping customers to obtain credit approval for these. Our highly dedicated financing team are the most experienced staff in the industry:

  • We seek out the best finance options for your business and provide unbiased assistance, with complete transparency.
  • Our guiding principle is ‘flexibility in approach’, providing tailor-made solutions to meet individual requirements.
  • We have built up strong, long term relationships with finance partners that share our passion for health and fitness.

For more information, and to find out what gym equipment leasing options are available from Precor in your region, please contact us.