By Paul Bosley, Special AFS Contributor
The most common financing option available for studios and gyms using fitness equipment leasing is a capital lease. The main purpose of a capital lease is to finance the fitness equipment purchase while preserving the owner’s working capital.
You can finance the purchase of their proprietary equipment, security systems, computer hardware & software, flooring, outdoor signage and other tangible items needed to run the business using a fitness equipment lease. The owner(s) are required to personally guarantee fitness equipment lease.
The following are 4 key benefits to your business of leasing equipment:
Conserve and Control Cash
Fitness equipment leasing saves your working capital for day-to-day business expenses, business expansions, or unexpected business-related expenses. In addition to saving your working capital, a lease provides a pre-determined monthly line item, which can help you budget more effectively. With predictable monthly expenses, you can develop long-term plans for your business with confidence and get your business set up with the fitness equipment you need while keeping your cash flow available for other expenditures.
Upgrade Outdated Equipment
Depending on your business type, fitness equipment leasing can help you stay on top of the latest advances in fitness equipment and technology. How long do you plan to keep the asset? If you're only planning to keep it for the short term, you may find that leasing is a better alternative than buying it and trying to resell it when you no longer need it. You can also determine the length of your lease, so if you work with technology that changes rapidly, you can take on a short lease to ensure you’re always at the cutting edge in your industry.
Lease financing presents your business with tax benefits with a full deduction of lease payments against current earnings. It also preserves working capital that you wouldn’t have access to if you had to purchase your fitness equipment up front. It is a good idea to check with your tax advisor to determine the tax benefits of leasing for your business.
Depending on your business type, fitness equipment leasing can help you stay on top of the latest advances in fitness equipment and technology.
More Attractive Balance Sheet
Monthly lease payments are viewed as a business expense instead of long-term debt. Having little debt on your balance sheet helps you secure financing to fund your business. And who doesn’t love a sexy balance sheet?
The manufacturers of nearly all fitness equipment that is costly will offer fitness equipment leasing. The leases are usually capital leases, so the fitness equipment will be owned by the business at the end of the lease term. The typical lease for a start-up business will require a 20% down payment and repayment term will be 36 months.
The typical terms of a fitness equipment lease for an existing company is a down payment that will range from a lease payment up to 20% of the amount financed. Lease documentation fees may range from $95 to $495. Repayment terms typically range from 12 months up to 60 months. All payments made are tax deductible, so the payments will lower business’s taxable income and, in turn, tax liability. Since the plan is to keep their fitness equipment long term, a typical capital lease offers a $1.00 end of term purchase option.
Ultimately, a few simple rules of thumb will help you decide to lease or buy. If your fitness equipment requirements are relatively small and you have the money or can get a low-interest loan, then buy the equipment. If you require a substantial amount of equipment, why tie up a large amount of cash especially when you could use that same money to grow your business? In short, a fitness equipment lease is used to finance the purchase of all the fitness equipment needed to manage the franchise; thus, preserving the franchisee’s working capital.
Paul Bosley is a partner and national marketing director in First Financial, www.ffcash.net and owns www.healthclubexperts.com. Paul’s industry experience includes previous partnerships with Titan Management Co., Q The Sports Clubs and Bally HTCA/Holiday Health & Fitness Centers. Paul has a bachelor’s degree in Health Science & Recreation Management and is currently pursuing a degree in accounting. He is a speaker at the Club Industry and International Health, Racquet & Sportsclub Association (IHRSA) conferences.
For more information, please contact Paul at (800) 956-7313 or set up your consultation today!