Loans can be scary. Long terms, high interest, and it’s all tied to the business that you’ve been working to start for years—everything is on the line if you don’t do it right. We’ve already talked about having a business plan in place and how helpful that is, but now it’s time to get your gym funded and turn that dream into a reality.
Let’s get you prepared. In this guide, you’ll find most hurdles you’ll run into during the loan application and how to navigate them. Let’s get you funded.
8 Factors That Define What Business Loan You’ll Get
1. Gross Income
When you don’t have the business income to contribute to this (which requires at least a year of profit records), you have to introduce your personal income as the borrower. Good profit means you’re likely on the shortlist for a good loan, or in some cases, you may not have to wait at all. This increases your approval odds while also helping you get a higher loan amount. For sole proprietors or LLCs operating on the individual’s SSN and income, unless you bring in a lot of money with very few living expenses, loan amounts won’t be nearly as amazing.
2. Credit History
This is personal, because if you’re in the market for a business loan, it’s likely not on an established level of business credit. Your credit history as an individual will impact how well you’re able to borrow for your business, so you want to make sure you mop up your debts, give it some time, and not have too many issues on your credit report in the meantime.
3. Borrower Age
It’s noble to break into the business world and own a gym at a young age, but it could also be detrimental to your ability to secure a loan. If you’re not already an established business and you don’t have a co-borrower (usually a parent or much older business partner), then you’re going to have a rough time. Borrower age unfortunately dictates most of the approval process, because it will also limit your credit history.
4. Current Cash Flow
Past business records are great, but was all that money spent on growth, or do you have money in the coffers? Businesses often opt for a loan instead of buying outright because it builds business creditworthiness, and allows you to have back-up money. It’s much easier to pay off a loan each month on a low APR than it is to buy everything outright and then recover from an economic dip or a loss of memberships. You always want to have good cash flow, otherwise securing a loan will be difficult to say the least.
5. Funding Time Frame
You should never wait until the last minute toi seek out loan approval. Instead, you should expect six to eight weeks of time between the application and receiving the funds after an approval. Some loan companies will promise funding in twenty-four hours after approval, and that’s great, but it’s not realistic. If you can’t foresee needing this loan at least six to eight weeks in advance, it’s a sign that your financial planning and projections are also in turmoil. If you don’t mind waiting on a longer funding time frame, you can usually get better rates for the duration as well.
6. Business Plan
Have you devised a vision plan, action plan, and a business plan? The business plan centers more on profits and cash flow than your goals. A bank or financial institution isn’t going to care about your business goals unless they’re directly tied to profit. Your business plan has to have action compounded with data so that you can actually stand a chance of getting a loan in the first place.
7. Customer Service and Public Standing
While this isn’t high on the totem pole, it becomes more relevant with higher loan amounts. If your business has a poor public perception, it’s a sign that you’re coming to get a loan before your cash flow falls out of favor. Business loans aren’t bail-outs, so if a financial institution even thinks that you’re using a business loan to bail yourself out for a moment, they won’t lend to you. However, if you’re upfront about your public standing and center the loan around rebranding, that may hold some merit. If you’ve recently acquired a business or become a partner in a previously established business and your plan is to rebrand, that holds more weight in the application process.
8. Repayment Terms
What repayment terms can you afford to sign up for? Short-term loans typically get a higher approval process because the company gets their money back faster, and typically they don’t approve low credit scores for short-term loans, so the equity of the borrower is much better as well. Find out what repayment terms you can reasonably afford without shooting your business in the foot.
Information and Paperwork You’ll Need to Apply
Before you apply, you have to make sure you’re ready with all the necessary documentation and info. Otherwise, the loan officer you individually deal with may make a decision based on your inability to prepare for a basic meeting/agreement. This is what you’ll need to bring along.
- A copy of your business plan
- Resumes (not your typical resume; this one includes management and business experience)
- Business credit report
- Individual credit report
- Income statements (tax returns, up to at least five years)
- Financial statements (cash flow, bank statements, balance sheets, income statements)
- A copy of accounts payable and accounts receivable (they may want to inspect your current financial process and average spend to know what you can truly afford without going bankrupt)
- Collateral (depends on lender and terms/agreement)
- All copies of contracts with third-parties (including CrossFit and any vendors you have agreements with)
- Proof of incorporation (LLC license, S-Corp filing, etc.)
- Franchising agreements if one exists
- Commercial lease for your current location
- Business license
- Any local zoning permits or registration
- List of employees and managers
5 Crucial Steps to Getting a Loan for Your CrossFit Affiliate Gym
Now let’s get down to the nitty gritty. You know what you need, what factors play into your approval, but that’s not enough. Let’s find out how the actual application process goes with you in the driver’s seat.
1. Determine Ideal Loan Type
Strap in, because this one is going to take a minute. There are far more loan types available than most people think. You have to find out what works for you based on what repayment terms you can agree to, what your business cash flow looks like, and honestly just what feels right for your business in its current stage; that’s something only you can answer. Here we go.
- SBA Loans: These are loans guaranteed by the Small Business Administration, which connects with other banks and lenders in their third-party program. They can be tricky to navigate, but easy to sign up for. You can get long-term loans of up to twenty-five years, or simple seven-year loans (working capital loans, which are amazing). These should be where you look first.
- Term Loans: Perhaps the most common form of loans, term loans are when you get a lot of money upfront and you repay (with interest) over a defined period of time. Think of it as a short-term and small-level mortgage, except for your business. It’s similar to taking out a home loan in how it works, obviously on a much smaller and more reasonable scale.
- Invoice Loans: You have cash flow, but based on your current growth, you have outstanding invoices to vendors or your customers are late paying their memberships. It happens, but it doesn’t have to ruin you. Invoice loans help you pay invoices or make up for temporary lapses in cash due to invoices you’re owed not being paid yet. They’re fast, but they often require a much higher interest rate. Ideally, you shouldn’t get invoice loans for a high amount if you can avoid it.
- Equipment Loans: Equipment failure can disturb your cash flow or cripple your business. You paid for that equipment once upon a time in order to open your doors, so now you need some help to fix or replace it so your business can continue properly. Equipment loans often require proof that you’ll be spending the money for its intended purpose, so you’ll want to get receipts for buying new equipment or repairing existing equipment.
- Business Credit Lines: Business lines of credit operate differently than business credit cards. These don’t have cards or pin numbers that you can just hand off to anyone and let them make a purchase for you—business lines of credit need to be accessed from your bank account and made as account purchases. These have varying terms, so be on the lookout for strict repayment terms. Even if you need funding, you don’t want a set of terms that make normal business operations constraining.
- Merchant Cash Advances: These work similarly to working capital. Each week (or sometimes each day), you’ll pay a certain amount of your income. This has plenty of benefits, but it’s not ideal in the slow season. These loans generally require a fixed amount, so you won’t be able to control how much they take. It allows unrestricted funding, but it also allows access to your bank account(s) directly, which isn’t a very comfortable feeling for most gym owners.
- Business Credit Cards: These are essentially lines of credit that you get for your business, but in a similar fashion to a credit card. These aren’t meant to be used to open businesses; they’re used for expenses that you may not see coming right away. They will have a limit and require monthly repayment, just like a normal credit card would.
- Personal Loans: You just opened your doors or you’re still waiting for the paint to dry. Either way, you’re not profitable. Hell, there’s not even cash flow—how do you get funding? Well, it turns out that you can use a personal loan for business purposes. This is personal because it solely reflects your credit score, credit history, income, and debt-to-income ratio. The business is barely a factor here, you just have to specify what the loan is for. This is similar to our next loan type: micro loans.
- Micro Loans: Micro loans are best described as loans that sit around $50K or less (usually much less). These are much easier for banks to loan you because your ability to pay back a micro loan (even as a small or new business) is much higher than other loan types. Plus, risk is lowered for them because it’s a relatively small amount of money for a bank if they do lose it. However, the eligibility may be awkwardly strict depending on which financial institution you go through, so be on the lookout for the terms.
2. Define Your Payments and What You Can Actually Afford
Before you sign up, you need to reasonably look at what you can afford. It’s very easy to make a mistake here because we always think we can do more than we actually can. Set the bar low as a favor to your future self. This is how you can define your actual repayment terms.
- Look at the Interest Rates: You’ll be paying back interest with each payment you make. Use an online loan calculator to determine what your average repayment would be on a loan for the amount you have in mind. Take the results with a grain of salt, because they can’t properly and accurately predict the terms and APR of your actual loan, but this should at least narrow your scope.
- Peer at the Cash Flow: Do you have enough cash flow to cover monthly loan payments? You have to turn a profit and pay people. It’s very easy to get stuck in a cycle where you’re waiting until the end of the month to pay vendors and hoping that clients pay their memberships on time just to make ends meet; it’s a very slippery slope. Without proper cash flow to cover your payments, the loan won’t work.
- Plan for the Unexpected: In business, things never go according to plan. Not perfectly, at least. You want to account for an employee requiring sick days, classes being canceled, and other disruptions in your day-to-day. If you can’t account for at least some degree of uncertainty and you’re keeping your cash flow and repayment terms tight, a loan may not be for you.
If you have managers, financial freelancers, or a co-founder, be sure to include them in this process. Sometimes you can forget an expense that stands to throw a wrench in the gears, or you’ll find a new perspective on the loan type that you didn’t previously think about. In a situation like this, two heads (or more) are better than one.
3. Choosing Secured vs. Unsecured Business Loans
Now you have to decide on whether you’ll opt for an unsecured loan or line of credit versus a secured line. There are distinct differences you need to know before you make that decision.
- Collateral: A secured loan uses a piece of collateral. If you don’t pay your mortgage, what happens? The bank owns the house, sells it, and makes money. The same with an auto loan; they will reclaim the vehicle, sell it, and make money. You know that when you sign up for a secured loan. With an unsecured loan, you don’t have any collateral, but instead you bench your ability and willingness to pay back the loan based on your creditworthiness.
- High Lenders: If you don’t want to go through a traditional bank, which already has systems in place and strict, rigid guidelines to follow, you can always opt for a lender that sits above the standard banking level. These lenders may work in private financial institutions that specialize with small businesses, and offer unsecured lines of credit or loans.
- Risk Assessment: Don’t forget about the risk assessment you documented when you started your business as a CrossFit affiliate. It’s important to keep your financial priorities in line during any loan application process. Take your business risk assessment and pit it against your current loan risk.
4. Compare Lenders and Offers
Now that you’ve decided what kind of loan you want, what you can afford, and how you’re going to pay it back, it’s time to look at every possible lender in your network.
This can be a time-consuming process, so you shouldn’t go through the application process with every single prospective lender (there will likely be hundreds or thousands for you to choose from, and it quickly becomes its own part-time job).
Here are the questions you need to ask yourself before making your shortlist of lenders to apply to.
- Can I Pay the Annual Percentage Rate?: Your APR is arguably the make or break point for any loan. For most traditional loans with collateral, APR will be the dictating factor in your ability to repay it on time and for the proper amount.
- Have I Thought About the Loan Repayment Time: 24 months doesn’t sound like a lot on paper, but think about living out each day from now until the loan is repaid. It’s a grueling process, and the loan may help with short-term growth, but if your business doesn’t take off the way you hope it does in that time, the loan will slow down continued steady growth.
- What Are the Consequences?: What if you can’t pay it off? What if the business goes south? Look at the consequences of the loan, if it’s tied to your personal credit, and everything bad that could happen if you fail to repay. Understand that these are real consequences and that paying back a loan like this with personal income is next to impossible. Don’t step into something you can’t find a way out of in the future.
5. Apply and Wait
Now fill out the application, shake a hand or two, and wait. This is the most aggravating part because it’s 100% out of your hands. You’ve done all you can, you’ve had control over the process, and now it’s just a waiting game.
While waiting for loan approval, note the type of loan you applied for and the usual approval times. Don’t harass your bank or lender for a status update—remember that they’re making money off of this, too. They’ll happily let you know the minute your loan comes through, or you’ll see it in your business bank account statement before they get a chance to tell you. Things move fast nowadays.
The important thing is to keep a level head and not pace or think about it too much. You have a business to run, so don’t worry about the loan approval; just get back to what you’re good at, and it’ll either fall in your lap or it won’t.
This Part of the Process Can Be Time-Consuming: Be Prepared
Waiting to hear back from business loan providers is hardly the exciting part about running your own CrossFit affiliate gym, but it’s a necessary step. Once you get the contracts out of the way and your loan is in your possession, it’s time to put it to good use and make the best possible gym that you can.
Remember that you don’t have a blank check (although it does feel like that at first). Pay for the rental costs of the building, do small renovations if needed, and work on branding your space to make it fun and playful. Don’t blow the entire budget on one single area of your purchases.