Yoga studios come in all sizes, requiring a variety of capital and fitness/non-fitness equipment used to operate the business. Below is an overview of the financing available based upon the amount of money required to capitalize on a yoga studio.
Small Business Administration Express Loan
In 2014, the Small Business Administration (SBA) introduced the Small Loan Advantage program, which some lenders refer to as the SBA Express loan. After the Great Recession, many homeowners lost the real estate equity needed in most cases as a collateral requirement for an SBA 7(a) loan approval. The SBA Express loan is capped at $150,000, thus limiting the lender’s risk, so real estate collateral is not required to collateralize the SBA Express loan.
This government backed loan is designed to provide up to $150,000 of working capital to support the yoga studio owner until the business generates positive cash flow. The loan process for an existing business takes approximately 90 days to fund the loan. The loan approval requires good personal credit ($700K+), liquid assets ($50K+) and attention to detail. If the use of the loan funds is to finance a new location, the loan can be approved in advance. However, the funds will not be distributed by the bank until the new location has received a certificate of occupancy, which ensures the money will be used to operate the new business. The interest rate for this loan is a variable rate — as published in the Wall Street Journal as currently at 5.5. percent — plus the bank’s 2.75 percent risk premium, so the current interest rate is 8.25 percent. The repayment term is 10 years with no pre-payment penalty.
Capital Leases — Leasing Equipment to Own
The most common financing option for equipment needed to operate any business is a capital lease. The main purpose of a capital lease is to finance the equipment, while preserving the owner’s working capital. Yoga studio owners can finance the purchase of their proprietary equipment, security systems, computer hardware and software, flooring, outdoor signage and other tangible items needed to run the business using an equipment lease. The owners are required to personally guarantee equipment lease. The required down payment ranges from a one-time lease payment of up to 20 percent of the amount financed. Lease documentation fees range from $95 to $495. Repayment terms range from 24 months up to 60 months. All payments are tax deductible — so they lower taxable income and, in turn, tax liability. Since most yoga studio owners intend to keep their equipment long term, a typical end-of-term purchase option is $1.
In conclusion, equipment leases and SBA Express loans are complementary products that enable the yoga studio owner with good personal credit to secure financing. The best aspect of this financing combination is the collateral used to secure an equipment lease is the equipment being financed, and the collateral for the SBA Express loan is the business, so the collateral is not your home, just your business assets.