Are you considering opening your 1st or 2nd CrossFit studio? If so, often the biggest fear is “How do I pay for this?” “Can I afford to purchase equipment and rent a space?” “How do I pay a staff and purchase CrossFit license to make this possible?” This short article describes 2 complementary financing products that can be used by a business owner to provide the financing needed to launch your new CrossFit studio! Read on….
Equipment Leases – Capital Leases to Own
CrossFit studio owners can finance the purchase of their strength & cardio equipment, security systems, computer hardware & software, flooring, outdoor signage and other tangible items needed to run your business with an equipment lease. The equipment being financed is the collateral for this lease. The owner(s) must personally guarantee the lease.
Lease documentation fees range from $95 to $495. Down payments range from 1 payment to 20% of the amount financed so an equipment lease preserves your operating capital. The repayment term ranges from 12 months up to 60 months. All lease payments are a tax deductible business expense so the payments will lower your taxable income and tax liability. Since most owners plan to keep the equipment long term, they choose a capital lease which offers a $1.00 or $101.00 buyout at the end of the lease term. In essence, a capital lease is used to finance the purchase of all of the equipment needed to open and run the CrossFit studio.
Small Business Administration (SBA) Express Working Capital Loan
This government backed loan is designed to provide working capital ranging from $20,000 up to $150,000 for start-ups and existing businesses. The main purpose of this loan is to provide the working capital needed to pay bills until the business becomes profitable. This loan process requires attention to detail and takes approximately 60 to 90 days to complete before the loan is funded. If the loan is being used to finance a new studio, the loan can be approved in advance, however the funds will not be distributed until the location has received a certificate of occupancy. This insures that the money will not be used to finance the build out expenses & is available for working capital.
The interest rate is calculated by starting with the prime rate published in the Wall Street Journal which is currently 3.5%. The bank charges a 2.75% risk premium for this loan so the interest rate is currently 6.25%. There are 3 points charges to close the loan which makes the effective interest rate 6.9%. The repayment term is 10 years with no pre-payment penalty. The best feature of this loan is that the collateral is the business assets… not your home! This loan product is by far the best financing product on the market today!
The main benefit of using debt financing is the access to other people’s money (OPM) at a lesser cost than your projected business net profit percentage. For example, if a $20,000 equipment lease has a 13% return to the lessor and an $80,000 SBA working capital loan has a 6% interest rate, the business owner is accessing $100,000 at a 7.5% blended interest rate. Assuming your studio will operate at a 15% profit margin, your cost of using OPM is less than half of your anticipated return on capital! Again, the equipment lease and SBA Express Loan are complementary products that can enable an entrepreneurial personal trainer with good personal credit to finance the opening of their new CrossFit studio.