Financing Tips and Tricks

Whether you are opening a new fitness center, or looking to finance improvements at an existing facility, there are realities about financing that most small, independent club owners don't know, or choose to ignore. For example, speak to most bankers, or even the Small Business Administration (SBA), and they will tell you that fitness facilities are "high risk." The fitness industry is lumped into the same category as restaurants, bars and hotels - special purpose facilities, often with inexperienced owners, with a high failure rate. So, how can you overcome that negative bias when looking for financing?

It really is who you know

Even if you don't have direct relationships with people who can finance your business, you can use other contacts to build those relationships. For instance, your accountant likely knows local bankers and can pave the way for you. Members of your Chamber of Commerce will likely have contacts with local investors.

Style counts as much as substance

Whether approaching a bank, a leasing company or your rich uncle, always make your materials look good. Did the investor ask for three years worth of tax returns? Put those returns in a three-ring binder with dividers for each year. Did they ask for a business plan? Make it look professional, and include photos and other "eye candy"; however, don't make it look so nice that it seems you have all the money in the world (because you don't). If your presentation looks good, they'll assume the substance of your information will also be of high quality - and it better be.

Look the part

Potential investors are evaluating you even more than they are evaluating your plan. Do you look the part of someone they can trust? Is your communication clear, concise and confident? Are you good in person? On the phone? Via email? Do not underestimate the negative effect of one poorly managed meeting, phone call or email. Email is especially dangerous. How is your grammar? Your spelling? Do not let the informality of the communication lull you into making a critical mistake in how you are perceived.

Your life is, and will be, an open book

Small business owners almost always have to provide personal guarantees for all of their business debt. Are you ready to have your personal finances scrutinized along with your business plan and performance? Whether you pursue a bank loan, a lease or even a standby letter of credit, most lenders will ask for personal financial statements and will run credit reports. Will you ever be able to stop making personal guarantees on your debt? Not likely, unless you bring in more business partners and no one owner controls more than 20 percent of the company.

Banks like to grant loans to people who don't need them

Among other requirements when considering a loan, your bank will want to see two key things from you: collateral and enough cash flow to cover the new debt. Having collateral can be difficult for a small business owner. Banks take only hard assets as collateral, and they will likely credit you with only 80 percent or so of the value of those assets. The second item is especially challenging. For an existing business, banks want to see that you are currently generating enough money to cover the new debt. That's right - they want you to be making enough money now to cover the debt that you are requesting, even before you've done the things that will improve your business and generate more cash.

It's not hopeless

None of these items is insurmountable. Many forms of financing exist, and there are many avenues to get help. The SBA, a friendly banker, cooperative friends and family - they can all help you achieve your financing needs. But, hopefully, these tips and tricks can help make your pursuit of financing a little easier. FM Small business owners almost always have to provide personal guarantees for all of their business debt.