Starting a gym business or expanding an existing one can be very demanding. The situation is still very much the same if what is intended is a fitness club. Whether it is a gym or a fitness club a substantial amount of investment is required. Gym equipment finance will be a key component of the entire business plan, helping business owners to bring their dreams to fruition. Making the right decision when it comes to equipment financing is usually not an easy one for business owners since there are several options out there. How a business owner chooses to finance his new gym business needs all the consideration it can get and the decision of the financing option should be viewed as a strategic one. In fact, the same way a business would consider other critical factors in the gym business such as location, membership fees, and target market is just the same way it is to consider gym equipment finance. It has to be said that not making the right decision on how to finance the equipment could mar the business. In the light of the above, we wish to consider some of the most popular equipment financing options for a gym business.
Purchasing equipment using bootstrap financing
One of the commonest means of financing gym equipment is through personal savings assuming the business is a new one. Most business owners might feel that since they have the cash at hand they might as well make the purchase of the equipment directly. Purchasing the equipment directly usually puts the business owner in a better position to negotiate for the best price. As good as that might sound it is not always the best for a business to carry out gym equipment finance using personal savings. For one thing, doing so ties up the business funds that could otherwise have been investing in other areas of the business such as building and fit outs. In addition, by holding on to cash the business could be more protected from any future unforeseen cash flow problems. If, for example, merchant cash advance is used for the gym equipment finance, the cost of the equipment gets to be spread over a longer period of time while payments are made on a daily basis from the revenue the gym business makes. Adopting such a financing option will help the business avoid the common problem of loss of liquidity which could place a significant strain on the finances of the business.
Purchasing gym equipment with equity funding
Most business owners who do not have enough cash on at hand sometimes turn to equity investors for gym equipment finance. While this idea might seem attractive the main problem lies in the difficulty in finding reliable investors who are willing to fund the gym business. And, even when one manages to find an equity investor it results in the business having to give up a share of ownership to the investor. In most cases, the equity investor will be involved in the management of the business for 2 to 3 years until he recoups his investment. In addition to the business having to give some of its autonomy, it also has to tackle higher rates since equity financing is much more expensive than even bank loans when it comes to gym equipment finance. A more appropriate financing option is likely merchant cash advance which shall be examined in greater depth later on. One way in which merchant cash advance is a better option than equity financing is that business owners do not have to give up autonomy in the process. The merchant cash advance providers simply provide the funds and let the business run its affairs the way it deems fit.
Purchasing gym equipment with a commercial bank loan
Banks have been at the forefront of lending to small businesses for ages. As such it is not entirely out of place for a business owner to consider commercial banks as a veritable source of gym equipment finance. However, recent practice does not suggest that business owners are that passionate about bank loans; perhaps due to the emergence of more innovative sources of business funding such as merchant cash advance. But one major factor a tiny fraction of business owners might still want to approach commercial banks for loans is because of the low-interest rates they offer. One other reason might be the long payment duration that banks mostly offer. In spite of these, there are significant drawbacks in bank loans. First, the current financial climate, especially since the time of the 2008 economic recession, has made it extremely difficult for small businesses to obtain commercial bank loans. Since 2008 the total bank lending to the small business sector has dropped by more than 20 percent.
The second thing is that the gym owner would have to apply directly to the bank without any form of support from the gym supplier. In any case, a loan request to a bank is almost certain to end in rejection, unlike a merchant cash advance application that has more than 90 percent chance of scaling through. The whole process of applying for a bank loan can also be very lengthy, sometimes taking several months for a simple loan to be processed. But, a merchant cash advance application for gym equipment finance can be processed within a week depending on the amount that is involved. To further complicate issues, banks might additional security that a business might difficult to provide, plus there might be a requirement for prior history before the loan can be granted. Considering the many obstacles that the business might face in seeking gym equipment finance from commercial banks, a business is likely to find it more beneficial to look to merchant cash advance providers for equipment financing.
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Purchasing gym equipment with merchant cash advance
A much better option than a commercial bank loan and all the other sources of finance so far discussed is merchant cash advance. Merchant cash advance can be obtained for several purposes for any business that meets the basic requirements. Gym businesses are also eligible for merchant cash advance especially when it comes to equipment financing. However, the financing might not be available to those starting out in the business since merchant cash advance by definition is repaid with the daily credit sales or revenue of the business. In essence, merchant cash advance is best suited for already established gym businesses that are seeking gym equipment finance in order to replace old equipment or to upgrade to modern ones.
Understanding Merchant Cash Advance
Merchant cash advance in itself is not a loan even though it serves the same purpose a loan in the sense that it provides funds for businesses which are expected to be repaid at a later date. Merchant cash is structured as sales transaction in which the merchant agrees to sell a portion of its future receivables to the business in exchange for something like gym equipment finance. The merchant cash advance provider as a result of the agreement signed provides the funds needed to purchase the equipment for the gym business. Because the merchant cash advance is not a loan, interest is not charged on it. In addition, there are no hidden charges as is often the case with commercial bank loans.
What happens instead is that the merchant cash advance provider charges a fixed fee for the service. This is because, in reality, the amount that is given to the business will be worth more in the future when the business is expected to repay the loan. The fixed fee comes in the form of factoring: the merchant cash advance provider multiplies the actual amount issued for the gym equipment finance by a certain factor that does not often exceed 1.5. The result gives the total amount that the business pays back. Meanwhile, an agreement also has to be reached on the amount of the daily revenue that is to be remitted to the merchant cash advance provider on a daily basis. In most cases, the agreed percentage does not exceed 25 percent. However, before the withholding percentage is decided, the monthly revenue and expenses if the business is considered so that payments would not impose a serious strain on the cash flow of the business.
Benefits of Using Merchant Cash Advance
Whether it is gym equipment finance or any other kind of financing a merchant cash advance provider makes it a top priority for the funds to be available to the business owners in the shortest space of time. Merchant cash advance can be made available to the business within one week of the application, unlike bank loans that seem to take forever. Meanwhile, a business is not required to have a good score before it can be issued with a cash advance. That is not to say that just about any score can do; rather it implies that the benchmark score for merchant cash advance is much lower than what obtains for bank loans. Above all, there is no requirement for collateral or personal guarantees in order for one to secure gym equipment finance from merchant cash vendors. So, looking at the benefits that could come from merchant cash advance, there is no good reason why someone shouldn’t give a try.