Whether you buy or lease gym equipment, outfitting your gym with updated cardio machines and weights can be a crucial step for growing your fitness center. When first starting out, many gym or fitness center owners purchase secondhand equipment that’s still in working condition. That equipment may work for a while, but after a year or more, it may start to show severe signs of wear and tear. To keep customers happy and to continue to attract new members, you’ll eventually need to invest in new equipment.
If you’re looking to update your gym or fitness center with new cardio and strength equipment, the next big decision is how to pay for it. Gym equipment isn’t cheap; in fact, it can be quite expensive to outfit a gym with the latest fitness machines and accessories. Most small business owners don’t have the cash on hand to replace equipment throughout a commercial fitness center, but they can lease or finance that equipment. We’ll walk you through how to decide which method is right for your gym.
Leasing Gym Equipment
Small business equipment leasing is an affordable, commonly used option for acquiring new equipment. Leasing gym equipment means you’re essentially renting the equipment from your lender or finance company. Your lender will purchase the equipment you request and you use it as if it belongs to your business, making lease payments to the lender each month for that right. When the term of your lease comes to an end, you can often choose between renewing the lease, returning the equipment or purchasing the equipment at a reduced price.
Leasing can be a good option for gyms that plan to update their equipment frequently. Rather than purchasing expensive new equipment every few years, you can keep your cash on hand and pay less when you lease gym equipment. And you’ll always have new, updated machines in your gym. Leasing can also come with tax advantages. The Tax Cuts and Jobs Act, passed in December 2017, made lease payments 100% tax-deductible, with no limit, for businesses.
However, leasing means you never actually own the equipment. That means you couldn’t sell it if you need to recoup some costs, and the equipment doesn’t show up as an asset on your balance sheet. Also, your lender may require certain stipulations such as conducting regular maintenance and keeping the equipment free from damages. If you violate the terms of your lease, you’ll usually be required to pay a fine or penalty.
Every lease agreement is different, so make sure you read the fine print and understand all the details and requirements before you sign. Some agreements are better than others, and you won’t know exactly how a lease will affect your business until you take a look at the exact terms.
Purchasing Gym Equipment
While small business equipment leasing is a good option for many business owners, some prefer to purchase their own equipment. Gym owners who want to own their equipment outright can pay cash for it. However, most small business owners don’t have enough cash available to purchase all of their equipment — and even if they do, most would rather protect their cash flow and choose to finance a large purchase. A gym business loan can be a viable option in this case.
Many types of gym or fitness equipment can last for years when cared for properly. If you don’t need to update equipment regularly and plan to use your fitness gear for a long time, you may find that the best option is to purchase it outright with an equipment loan. In this case, your business is the owner of the equipment from the date of purchase and you’ll make payments to your lender only to pay off the loan, just as you do when you finance a home with a mortgage loan.
Section 179 Tax Deduction
A recent change in tax law, the Section 179 tax deduction, could make equipment purchases more attractive to some business owners. In the past, when a business owner purchased equipment or machinery, they weren’t allowed to deduct the entire expense from the business’s taxable income for the year the purchase was made. Instead, they were required to depreciate the expense of newly purchased equipment or machinery over a number of years, deducting a small portion of the cost each year. With the new tax law, business owners can deduct 100% of the expense of equipment for the tax year during which the equipment was purchased.
This rule was included in the Tax Cuts and Jobs Act with the intention of spurring on economic activity among small businesses. It makes new equipment purchases more attractive — and helps small businesses recoup the cost for some of those purchases through a tax deduction. But the cost of your equipment will determine how effective that deduction can be for your business. Under Section 179, businesses can deduct up to $1 million in equipment costs. If you purchase more than $2.5 million worth of equipment, the deduction begins to decrease — which shows that these rules are specifically geared toward helping small businesses.
It’s easy to take advantage of Section 179 because the deduction applies no matter how you purchase the equipment, with cash or financing. That means if you get a small business equipment loan to fund your purchase of new stationary bicycles, you can deduct all or most of the loan amount from your taxes that year — even if you’ll continue to make payments on the loan for several years to come. This allows small business owners to get the equipment they need to grow and reduce their tax bill in the process.
Whether you choose to lease gym equipment or purchase it with a business loan, you can get the items you need to grow your gym at an affordable price, along with potential tax advantages. Either way, your gym will sparkle with new fitness equipment, and you’ll be on your way to building a stronger business.