The first question everyone asks is, what is the rate? While rate is important, there is more to consider if you want to preserve your cash flow and grow your club affordably.
1. How much cash is required upfront? Lenders vary widely in their requirements. As a result, make sure to ask specifically about down payments, advance payments, deposits, documentation/origination fees and when the first payment is actually due.
2. Ask what happens if you want to pay the loan off early. Lenders all handle early repayment differently; some lenders do not offer any interest reduction for paying off early while others allow you to pay only the remaining principal balance. There are also numerous variations in between. Make sure you understand how the payoff would be calculated and weigh the impact of this against your future plans. Sometimes the flexibility afforded to you by a reasonable payoff option is more valuable than a lower initial rate.
3. Is it a loan or a lease? Who will get the depreciation benefit? For this question you will want to speak to your tax advisor to determine the best scenario for your club. Typically with a loan you can take the depreciation benefit and with a lease the lender receives it. If it is a lease, you want to know the end of lease option; it may range from a fair market value, which to own the equipment you would pay the value of the equipment at that time, to a $1.00 purchase option.
4. Can I defer the first few payments or pay interest only? Some lenders give more time without payments or interest-only payments initially. This can be very beneficial for your cash flow in the first few months when you are ramping up membership.
5. Ask if the lender will finance non-fitness equipment. A lender that can finance the complete solution will allow you to keep more cash in your business.
6. Does the lender have a dedicated fitness team? The best lenders have dedicated teams that understand how the club opening process works and ensures it is as easy as possible for you.
7. Ask how the lender handles taxes and insurance. Some lessors collect property tax or place the equipment with an insurance provider automatically. This can add substantial costs to your financing.
8. Who will service my loan? There are direct lenders and brokers in the marketplace. If it is a broker, a different company may be handling your account after closing.
9. Ask for the financing options before sending out your credit information. You have a million things to do to get your club open. So, make the financing process easier on yourself by shopping the lenders before you send your credit package out. This will limit the time you spend on the process and the inquiries on your business and personal credit. You can pull your own free credit report at www.myfico.com to provide prospective lenders with your score and avoid multiple inquiries.
10. Ask for referrals. There are some things you can’t know about a lender unless you go through the process or talk to someone who has been through it.
Opening a club is a challenging task. Understanding and selecting the right financing option will give you one less thing to worry about.
Carol Francis is the Director of Marketing of Firestone Financial www.firestonefinancial.com. For more information on Firestone Financial please call 1-800-851-1001 ext. 285 or email at websales@firestonefinancial.com.
