Map of the world with money

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Is your dream to run a gym or to have more sites of your existing facility? Being a franchise owner with an established company like World Gym can be a great option to building a successful future, while sharing your love of health and fitness. 

But getting started can be daunting, as you have to have the capital to open the gym in the first place. Most prospective franchisees aren’t ready to fund the venture out of their own pockets—and the good news is that you don’t need to, says Aaron Digregorio, a loan officer on Live Oak Bank’s Fitness Center Financing vertical.

Read on to find out more about three potential financing sources:

SBA loans

One great way to get financing is with a U.S. Small Business Administration (SBA) loan. Although that’s the name of the loan, they don’t actually come from the SBA itself. Instead the agency partners with banks and other lenders who provide the funding, but the SBA backs it to reduce the bank’s risk.

“These are a great option for a franchisee looking to grow,” says Digregorio, whose bank happens to be the largest SBA lender in the country. “We often urge our clients to explore the SBA route because there is much more flexibility on down payment requirements which allows you to preserve your liquidity up front.”

And if you already have a business and are looking to expand, you can leverage your existing cash flow and bring it as equity into the new deal, he explains.

Another benefit is that you can finance an SBA loan over 10 years with no prepayment penalty. That means you have a lower initial monthly payment, but if you want to repay the loan, you can without incurring additional fees as you might with other loans. While Digregorio sees many advantages with an SBA loan, he also cautions potential franchise owners to choose their lender wisely as SBA loans can be complex transactions. Find someone with a strong track record in working with franchisees.

Conventional financing

More-established businesses may outgrow the SBA product, which is capped at $5 million, based on the outstanding principle balance. That’s when you might look into a traditional bank loan, which is typically available only to stronger, proven borrowers.

Digregorio says these loans are mostly for larger-scale or existing operators. “Many new franchise owners assume they have outgrown an SBA loan or think they won’t qualify personally because their net worth is too high, when they actually would. Make sure to ask your banker,” he says.

Outside capital sources

If you need more liquid capital, you might want to consider an investor, either a friend or family member or someone who regularly invests in companies, like an angel investor or equity firm.

Remember that each situation will have a wide variety of variables, from how involved the partner wants to be in decision making to what percentage of profits they’ll take for making that initial investment. Before signing any contract or taking on a partner, Digregorio recommends talking to a financial advisor or CPA.

In fact, seeking advice is smart, no matter how you decide to fund your new gym.  “Anyone starting a business should surround themselves with industry experts,” Digregorio says. “Make sure your lender understands your business model and whether it generates enough cash flow to support existing and new debt, while also allowing you to maintain your personal lifestyle.”

Need help?

Have more questions about a World Gym franchise? Click here to schedule a session with Jackie Mendes, Director of Franchise Sales & Development – North America.