Paul Bosley is national marketing director for First Financial. His health club industry experience includes working for Titan Management Co., Healthclubexperts.com, Q Sports Clubs and Bally HTCA/Holiday Health & Fitness Centers. He has a bachelor’s degree in Health Science & Recreation Management and is studying to get his associate’s degree in accounting. He has spoken at the Club Industry and International Health, Racquet & Sportsclub Association conferences. For more information and questions about SBA loans, e-mail Paul Bosley at [email protected].
The saying “Liars never figure and figures never lie” is an appropriate starting point for reviewing Small Business Administration (SBA) loan financing within the fitness industry.
This column includes some interesting figures, provided to me by Bob Coleman, the founder of the “Coleman Report,” a newsletter covering the U.S. SBA loan programs. Coleman also is a national expert covering SBA lending programs and has worked for more than 25 years in the SBA industry.
One of the most interesting pieces of data is that the fitness industry collectively secured more than $1 billion in financing from the SBA in this decade.
“The fitness industry is currently 17th as an industry category of 1,185 industry categories for SBA lending, so lenders are comfortable and have a history of lending to fitness centers,” Coleman says.
He added that the franchises within the fitness industry as a whole are performing slightly better than the national average of SBA loans, and the industry as a whole is performing at the national average. Franchisors can apply to be approved by the SBA, and if approval is received, then their franchisees get a better rate on their SBA loans.
The following table includes details about all of the SBA-approved franchises, which collectively received nearly $30 million in SBA financing in 2008. The failure rates are not failure rates of that franchise’s clubs in total; it is the failure rate of the franchisees that applied for an SBA loan (as some franchisees do not apply for SBA loans).
Benefits of SBA Loans
SBA loans provide the following benefits:
1. Flexibility – SBA loans can be used for your start-up health club, for refinancing existing business debt or for expansion of an existing company. In the case of a start-up or an expansion, SBA loans can be used to finance a real estate acquisition or to finance a portion of the build-out for leased space. Consequently, SBA loans are flexible for your specific business needs.
2. Good Financing Terms – The terms of SBA loans that finance real estate (SBA 504 program) typically will be 25 years. Unlike many commercial real-estate loans, these loans do not have balloon payments, so all payments include principle and interest over the term of the loan. The terms of the SBA loans (SBA 7A program) that do not involve the purchase of real estate can range from seven to 10 years. Interest rates vary based upon the type of loan (504 or 7A), the prime rate at the time of closing and the strength of the borrower(s). As a general rule, the interest rates are approximately 6 percent for a 504 SBA real estate loan and 2.75 percent or less for 7A SBA loans over prime rate, which in today’s lending environment is at a historic low.
3. Increased Approval Potential – The SBA program is designed to spread the risk of the loan between the lending bank and the SBA. Depending upon the type of loan (504 or 7A), the SBA will assume a percentage of the risk so that the lending bank is actually only putting at risk the portion of the loan that the SBA does not guarantee. All SBA loans are secured by the borrower with some collateral, which typically includes their personal real estate. Many lenders are risk adverse in our current business environment, so this is an extremely important element of an SBA loan.
4. SBA Fees Waived – The U.S. Bank SBA Division is promoting that small business owners now have an even better incentive to tap into long-term, SBA-guaranteed financing, and interest rates are now at an all-time low. The recently enacted Recovery and Reinvestment Act now empowers lenders to provide SBA-guaranteed loans without the usual SBA fees to borrowers for the remainder of 2009. The fee savings could be as much as $53,000 on a $2 million SBA 7A loan. Erik Daniels, senior vice president at U.S. Bank and president of U.S. Bank’s SBA Division, said, “The temporary waiver of borrower fees will assist small business in retaining their capital, which will help them sustain and grow their business.”
With the many benefits of SBA loans and a track record of more than 5,000 SBA loans funded in this decade alone, the fitness industry has been and should continue to be the benefactor of this important funding source.