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 developing 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 recognise that every business is different and so the right option(s) for you is based on your individual circumstances. There will usually be a number of funding choices available to you and the most common are:

1. Purchase equipment using your own cash resources

This usually puts you in a marginally stronger position when negotiating the best price for equipment. However, it also ties up your cash in the fitness equipment for a number of years – cash that can often be put to more effective use elsewhere. For example, acquiring financing for building or fit-out costs can sometimes be more difficult to obtain and if this is the case, it’s best to save cash for these purposes, rather than use it up on equipment acquisition.

By holding on to your cash, you can also protect your business from any future, unforeseen cash flow issues. If you’re an existing business owner you’ll already know that working capital is the lifeblood of any business and unless you’re relatively cash-rich, tying up cash in a business asset creates a ‘loss of liquidity’, which in turn can put a strain on finances further down the line.

2. Purchase equipment using equity raised from investors

An alternative to self-funding equipment purchases is to use money raised from investors. Again, this allows you to negotiate as a cash purchaser, but the fact remains that you are tying up the company’s valuable cash resources in assets.

Furthermore, equity is generally more expensive than bank debt and can dilute your investment in and control of your business. For these reasons, equity is not usually the most appropriate source of finance for fixed assets.

3. Taking out a loan

Bank loans are a popular and viable alternative to ‘self-sourced’ funding. Borrowing rates can sometimes be attractive and you own the gym equipment from day one. However, there are also some drawbacks:

• It can sometimes be difficult to find a bank willing to lend in the current financial climate
• You will need to apply directly to the bank (i.e. no support from your chosen commercial gym equipment supplier)
• The application process can be lengthy
• Prior 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

It therefore often makes more sense to keep any bank funding lines available for other financing needs, such as providing working capital, or funding fit-out or set-up costs.

Aside from traditional bank loans, the internet is changing the way we do everything, and accessing debt finance is no different. ‘FinTech’ (Financial Technology) businesses such as ‘Funding Circle’ are bringing new funding options to market through crowd funding / crowd investing. Although still in their infancy, these options can offer attractive solutions for some businesses.

4. Leasing (sometimes referred to as ‘financing’, ‘rental’ or ‘hiring’)

Paying for the use of equipment over time and drawing upon the income it generates is often the most logical financing solution. Therefore, leasing is a very commonly used method of funding. We’ll now cover professional gym equipment hire in more depth.

Why lease gym equipment?

Many businesses choose to rent gym equipment as it is flexible and overcomes many of the drawbacks of outright ownership. Leasing gym equipment, rather than buying it, offers a number of key benefits:

• It frees-up capital that can often be better spent in other areas of the business. Once you’ve tied up capital in fitness equipment, it is locked away forever. By contrast, fitness equipment rental allows you to pay for the asset over its useful working life and means that you can utilise capital more efficiently and effectively elsewhere in your business.
• Leasing spreads the cost of equipment acquisition over a long period. It’s vital to remember that the benefits to your business of acquiring new commercial gym equipment do not come from owning it, but from utilising it.
• Typically it’s a straightforward process to arrange a lease
• It mirrors income – you’ll usually receive monthly membership fees, and so it often makes sense that you should pay for assets such as the exercise equipment in the same way
• Interest rates are often fixed, which means that you’re accurately able to predict repayment costs, and therefore cash flow.

Leasing comes in many forms

In Precor’s experience, most customers require either a three or five year equipment lease. Monthly payments are generally the most common repayment structure but, subject to credit status, other options are available:

• Seasonal payments - these match rentals to fluctuating income
• Low start profiles – repayments are less in the early months, to help cash flow when the gym is ramping up membership numbers
• Initial payment holidays – one step beyond the ‘low start’ principle, where there is an option to ‘install now, pay later’

What is typically required when you apply for finance?

Specific requirements can vary depending on your geographical location and the particular lender’s requirements, but generally speaking the following applies.

Typically, for a new gym business, or one that has less than three years of trading history, a leasing company would require:

• A detailed business plan
• Financial projections
• Management accounts (if already trading)
• 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
• Finally, for new businesses, personal guarantees from shareholders are also normally a prerequisite.

Typically, for a gym business which has been trading for three or more years, a leasing company would require:

• 2 years of audited accounts
• Management accounts
• A trading overview
• A summary of member numbers

Get more tips from our guest post with Asset Advantage on how to pitch to a finance company

10 tips for getting the very best financing deal

How much does it truly cost to lease gym equipment? What does a good deal look like? Sometimes it can be difficult to tell, but here are ten key pieces of leasing 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, so you 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, and so if a treadmill breaks down, or a cross trainer needs servicing in later years, you’ll need to budget for this cost.
4. Always clarify with the finance supplier whether you’re being provided with a quote (which is non-binding on the lender’s part) or an offer (which the lender is committed to providing you)
5. Don’t agree to a period that’s longer than you’re comfortable with. Terminating a lease agreement early can be costly, so ensure that you’re happy committing to the lease term.
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. A cliché, but if the deal sounds too good to be true, it probably is
8. You could be eligible for tax relief as a result of leasing equipment, and so you should check this with the leasing company, or your financial advisor
9. Consider making a down payment on the lease, as this increases the likelihood of approval and reduces the overall interest cost
10. Finally, ensure you’re clear on the end-of-lease term options. You’ll often have the option to buy or continue to rent the equipment at the end of the hire period, and it’s useful to understand what your options are from the onset.

How can Precor help?

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