What is in this article?:
For many small club operators, money is often in short supply. And that is especially true for those just setting up their businesses. The option to lease equipment—especially if it is really a financing option that allows for the purchase of the equipment at the end of the lease—is an attractive proposal for many.
For many small club operators, money is often in short supply. And that is especially true for those just setting up their businesses. The option to lease equipment—especially if it is really a financing option that allows for the purchase of the equipment at the end of the lease—is an attractive proposal for many, including Tammy Wright and her husband, John. The two opened ABC Wellness and Fitness Center about six years ago in Waldorf, MD.
"It was cheaper for out-of-pocket expenses," Wright says. Putting just $20,000 down on an initial lease and then making monthly payments for three years was a better choice for the couple than spending $80,000 in one lump sum, she says.
The Wrights are not alone in making this decision. No statistics are available on how many fitness facility operators lease or finance their equipment, but estimates are that 60 percent to 80 percent lease some or all of their equipment, according to those who work on the leasing side of the business.
Leasing and financing deals were more abundant prior to the recession when lending policies were looser, says Joe Schmitz, president of F.I.T. Leasing, Garden Grove, CA. During the recession, the requests for financing increased, adds Lucian Rasmussen, director of leasing for Precor, Woodinville, WA, but the ability to lend was lessened due to tighter lending policies.
Lending has gradually loosened again, but Schmitz says it is still tight compared to the mid-2000s. Club operators also quit buying equipment during the recession as they slowed expansion plans and held onto existing equipment longer, which meant fewer of them needed leases and financing.
"We are seeing more existing club operators starting to replace older equipment," Schmitz says. "We are seeing a small uptick in new businesses—but not much."
The decision to lease or buy often is based on whether club operators have cash flow, but even if they have the cash, the decision may depend more on their philosophy about managing cash flow, Schmitz says.
"Some people want to own everything, so they pay cash for everything," Schmitz says. "Some people who are club owners say, ‘I don't need to own equipment; I need to use equipment, so I will lease my equipment and use my cash in ways that will generate new revenue like marketing.'"
About 70 percent of leasing in the fitness industry is really just a form of capital financing, Rassmussen says. Most leases tie operators into a three- to five-year contract in which they are financing anywhere from 80 percent to 100 percent of the equipment with the ability to buy it at the end of the lease.