Gym Equipment Financing: Guide to Loans, Leases and Credit

Workout equipment is one of your gym’s most important assets. But for many owners, purchasing machines, free weights, and other necessities outright isn’t feasible. Equipment financing requires lower upfront costs, allowing you to have more cash on hand for other business expenses.

Importance of Smart Financial Planning for Gym Owners

Opening a successful gym is challenging, with 81% of fitness studios failing their first year, often due to insufficient funds. Understanding your gym's cash flow can help you track the ebb and flow of money within your business.

Having more money coming in than going out ensures stability, while operating in a deficit signals potential financial challenges. This information can help guide important business decisions, like deciding whether to buy or lease workout equipment.

The Modern Gym and Its Equipment Needs

Quality equipment isn't something business owners should skimp on. With 38% of gym goers citing equipment access as a key reason for maintaining their memberships, investing in top-notch machines and free weights is essential for member retention. But, equipping an entire gym can be expensive.

If you plan on purchasing your equipment, expect to pay at least $25 per square foot. This shakes out to $75,000 for a 3,000-square-foot gym. Additionally, it's important to consider how smart equipment is changing the gym landscape. As smart equipment evolves, you may want to continue upgrading equipment to keep up with competitors, adding additional ongoing equipment costs.

Types of Gym Equipment Financing

Don’t have enough capital to purchase thousands of dollars worth of equipment? Gym equipment financing can help. Let’s take a look at popular equipment financing options.

Small Business Administration (SBA) Loans

An SBA loan, backed by the U.S. Small Business Administration, offers businesses more favorable terms and flexible criteria than traditional loans. Government support encourages lenders to assist companies that might not qualify otherwise.

Unlike conventional loans, SBA loans have lower credit standards, reduced down payments, longer repayment terms (up to 25 years), and no prepayment penalties for terms under 15 years. This allows businesses to preserve cash for growth or other needs.

Unsecured Business Loans

An unsecured business loan is a type of financing that doesn't need collateral like cash, equipment, or real estate. These loans are riskier for lenders, leading to stricter eligibility criteria and higher credit score requirements.

Gym Financing Companies

Gym equipment financing companies help businesses get the gear they need by providing funding specifically for equipment and/or technology. Requirements for these companies can vary between organizations, with factors like credit history, business stability, and the type of equipment needed influencing eligibility criteria. Each financing company may have its own set of conditions tailored to their lending practices.

Point-of-Sale (POS) Financing

Some gym equipment manufacturers offer POS financing. This allows gym owners to make purchases and pay for them in installments at the point of sale. Credit requirements for POS financing can vary among providers.

Some POS financing options may have minimal credit requirements, making them accessible to a broader range of consumers, while others may have stricter criteria depending on the provider's policies.

Leasing

In lease financing, the owner (lessor) lets someone else (lessee) use the asset in return for regular payments. Unlike the financing options discussed above, lessee's don't actually own the equipment they're using. At the end of the lease term, there may be options to buy the equipment, renew the lease, or upgrade to newer models.

Financing vs. Buying Gym Equipment: Weigh the Benefits for Your Business

Benefits of Equipment Financing

Equipment financing can help you better manage your gym’s money by providing a way to acquire equipment without a significant upfront cost, preserving cash flow for other operational expenses.

Dakota Smith, Head of Operations at Bevel Financial, emphasizes this saying, “Owning and operating a gym requires significant upfront cash investment in equipment, facilities, marketing, etc. While this investment can pay off over time as the business grows, it can also be a significant barrier to getting started. Taking on debt through business loans or equipment financing can help new gym owners acquire essential equipment before they have the revenue and profits to pay for everything upfront.”

Downsides of Equipment Financing

While equipment financing offers some serious benefits, Head of Operations at Bevel Financial Dakota Smith warns that gym owners should be prepared to make payments, even if they're not yet profitable.

"The biggest potential drawback once you take out a loan is that you owe that lender money, no matter how successful or unsuccessful your business is,” Smith said. “It pays to be cautious and be a disciplined steward of your finances to ensure you always have enough cash to make the payment and still operate a healthy business. If you fail to make the payment, your credit will be negatively impacted."

Benefits of Buying Gym Equipment

Opting to purchase your equipment over leasing or taking out a loan offers a few key advantages. First and foremost, buying gym equipment gives you a valuable business asset. If you run into financially tough times, selling equipment can help you recoup lost funds, providing a potential financial lifeline.

Ownership provides more control over equipment, allowing you to make decisions about maintenance and customize gear to fit your gym's aesthetic.

Downsides of Buying Gym Equipment

The obvious downside to purchasing gym equipment are the upfront costs. Many entrepreneurs don't have $75,000 or more to invest in quality workout equipment. Additionally, ownership involves maintenance and potential upgrade responsibilities, leading to extra costs.

Making the Right Choice for Your Gym’s Future

So, how do you know which option is best for you?

Head of Operations at Bevel Financial Dakota Smith advises, "If you have enough cash on hand to make the purchase and keep three to six months of operating expenses handy afterward, purchasing equipment may be a good option, especially for business owners who are debt averse. Financing makes sense if you want to conserve cash and you are confident that your investment will generate enough additional revenue to maintain healthy financial ratios."

How to Secure the Best Interest Rates on Gym Equipment Loans

Interest rates are typically based on a lender's confidence in your ability to repay the loan. Factors that impact your interest rate include:

Credit score
Time in business
Industry
Loan Term
Down Payment
Equipment Type
Loan amount

The best way to receive low-interest financing from lenders is by making your business a low-risk borrower. Having good credit, strong cash flow and a high revenue all help build a lenders' confidence in your business.

To get the best interest rate possible, Head of Operations at Bevel Financial, Dakota Smith advises gym owners to call around and keep a pulse on the Wall Street Journal Prime rate.

"Owners can find the best rates for their gym equipment purchases by calling and discussing loan terms with various lending sources,” said Smith. “Banks will generally have the lowest interest rate but may not be able to offer some of the same flexibility that you'd find in other commercial lenders. A good benchmark for interest rates is the Wall Street Journal Prime rate (WSJP). The WSJP surveys large banks and publishes the consensus interest rate. Assuming the other agreement provisions suit your business, a rate under the WSJP rate is a good deal. Still, depending on factors like your time in business, operating history, company profitability, and ownership borrowing history/credit scores, the rate offered to you can vary."

Building a Strong Credit Profile

When determining whether or not to loan money to your gym, lenders will consider both your personal and business credit scores. Your business score typically carries more weight in this decision. Business credit scores range from 1 to 100, while personal credit scores range from 300 to 850. For both personal and business credit scores, the higher your score, the better your credit.

Good credit scores grant you numerous benefits when securing equipment financing, including lower interest rates, better repayment terms, and broader repayment options. Poor credit scores may result in higher interest rates, larger down payments, and stricter lease conditions.

If you're dealing with bad credit, the following strategies can improve your credit score and help you secure a more favorable loan.

Pay bills on time
Reduce credit card balances
Monitor credit reports
Maintain a good debt-to-income ratio
Settle outstanding debts
Establish a credit history

Understanding the Terms: A Breakdown of Gym Equipment Financing Repayment Plans

An equipment financing loan term is the time it takes to pay off your loan completely. Equipment financing terms typically fall between three to 10 years, but specifics depend on the leased equipment type and the borrower’s credit strength. Head of Operations at Bevel Financial, Dakota Smith says that gym owners can typically expect a three to five-year term for fitness equipment financing.

Customizing Repayment to Align With Your Business’s Cash Flow

Managing your gym’s cash flow can be challenging, especially when you first open or experience slower periods. Tailoring your repayment schedule can help you meet your financial obligations without putting additional strain on business operations. Below are a few payment structures that can grant your business repayment flexibility.

Deferred Payments

Deferred loan payments let gyms to delay payments for a set period, allowing you to generate income from the equipment before payments start.

Seasonal Payments

If your gym experiences seasonal cash flow shifts, seasonal payments may be a helpful repayment option. Seasonal payments allow you to make larger payments during peak seasons and lower payments when business is slow.

Modified Repayment Terms

Modified repayment terms refer to adjustments made to the original terms of a loan agreement, such as changes in interest rates, loan duration, or monthly payment amounts. These adjustments are usually implemented to suit the borrower’s financial situation better or accommodate unforeseen circumstances.

Finding the Best Financier for Your Fitness Business

As fitness technology evolves and innovations in smart gym equipment emerge, it's important to work with financiers who understand the unique needs of the fitness industry. But how do you find a lending partner who knows the challenges and opportunities of operating a gym? Expert Dakota Smith advises gym owners to consult industry peers and conduct thorough online research.

"Please talk with your peers in the industry to figure out who they're working with and why they chose that partner,” Smith said. “Do online research to understand the lending marketplace for your business, or work with a commercial financing marketplace or broker to secure the best financing rate and terms for your business. Many equipment manufacturers will offer a financing program through a partner lender that understands your purchasing equipment and can offer subsidized rates. You should visit with your product's manufacturer to see if they offer a specialized financing program."

Financing Options That Support Your Gym’s Modern Edge

Over the past few years, standard exercise machines like stationary bikes and treadmills have evolved into data-driven exercise tools tracking a variety of workout metrics, and it doesn't look like this industry is slowing down anytime soon. Industry experts estimate the smart fitness market will rise 12.4% CAGR between 2023 and 2033.

According to financial expert Dakota Smith, equipment financing can help gym owners keep up with this trend by enabling them to invest in new equipment more easily.

Smith said, "Financing allows gyms to make purchases of new equipment today instead of waiting until they've accumulated enough cash to make a purchase, keeping your business looking fresh and offering the tech-enabled features that today's consumers have come to expect in the market."

Since the fitness world is constantly changing, Smith advises that leasing may be a better option than other forms of financing.

"In an industry where the latest technology can keep you relevant, consider leasing the equipment instead of purchasing or financing,” said Smith. “Operating leases allow you to rent the equipment for a fixed period with fixed payments; then, at the end of the financing term, you can extend your lease, return the equipment, or buy out the equipment at the fair market value. These operating leases are designed for companies that rely on the latest technology and need a refresh cycle every one to three years. Ask your lender about leasing options to discern which solution may be best for your business."

Leasing ensures that gyms can regularly refresh and upgrade their equipment to incorporate the latest technological advancements. This approach allows gyms to stay competitive in an industry where high-tech fitness gear can help attract and retain members.

Next Steps After Gym Equipment Financing

After accepting the loan terms, your lender will send you the necessary documentation for your signature. After all parties have signed, the lender will release funds to the equipment seller, who will then release the equipment to you.

Post Financing Checklist

Track Inventory

Make note of all the equipment you’ve acquired through financing and ensure that the items delivered match the items in your purchase agreement. If you notice discrepancies, report them to your financing partner.

Monitor Your Business Finances

Keep a close eye on your gym's financial health post-financing. Track revenue, expenses, and cash flow to ensure that you can meet your repayment obligations without jeopardizing other operational needs. Make sure you add the new debt payment to your expense projections.

Periodically Review Terms

As your business evolves, so too may your financing needs. Regularly review your financing agreements and assess whether your current financing terms align with your emerging business requirements. If necessary, explore opportunities to renegotiate terms or secure additional financing for future expansions.

Track Technology Trends

Keep a pulse on the fitness industry and stay informed on new equipment trends. Based on these trends, make a note of what equipment you would like to acquire in the future.

Bottom Line

If you don't have the capital to purchase workout equipment outright, equipment financing can help you acquire the exercise gear you need to run a successful gym. Before seeking financing, ensure you have good credit to get the best rate possible. When searching for a financier, inquire with other gym owners for recommendations and choose an experienced organization with a track record in the fitness industry.

More Advice for Gym Owners

Resources

IHRSA. How to Build a Successful Health Club Franchise Model
Bankrate. Wall Street Journal Prime Rate
Future Market Insights. Smart Fitness Market

Intro to Gym Equipment Financing for Gym Owners