Gym and Fitness Center Underwriting Method: Membership Penetration, Attrition and the Class's SBA Record

A membership club sells the same promise again every month. In the model this article uses, its building, equipment and staff cost the same whether the floor is busy or empty, while its revenue depends on two counts that move on their own: how many people in the trade area are willing to pay dues, and how quickly those who join decide to stop. A lender financing a new or expanding club is therefore lending against a flow, not a stock. The membership base is a pool that fills with each month's sales and drains with each month's cancellations, and its level at any date is the balance of the two.

The pages below show a study measuring each side of that balance for gyms: first the membership rate a market can carry, worked back from public spending data instead of borrowed from industry surveys, then the attrition rate that converts a sales forecast into a stable base. After those two models come the operating measures a credit officer will want, the federal eligibility tests and state club laws a gym must clear before it borrows or opens, and the SBA loan record for its industry code. The general methods are covered elsewhere in the series: drawing a trade area and applying a penetration rate in the trade area and demand article, counting competitors in the supply article, and the shape of an opening in the ramp-up article. A full worked case for a leased club is the Hawaii gym worked example. What follows is the part that is particular to gyms.

What the Industry Code Holds, and What It Leaves Out

Every figure in the class's loan record, and every Census count used below, is keyed to one industry code. NAICS 713940, Fitness and Recreational Sports Centers, is defined as the industry of ^[1] "establishments primarily engaged in operating fitness and recreational sports facilities", a definition that reaches beyond the gym. Swimming pools, skating rinks and racquet clubs sit in the same code as a weight room or a group exercise studio. A reader should hold that breadth in mind each time a national ratio or a loan count appears in this article: they describe the whole code, not health clubs alone.

The code also leaves things out. A personal trainer who works without operating a facility is classified in NAICS 812990 rather than here ^[2]. A business whose main activity is instruction, such as a studio that sells yoga or exercise classes as teaching, belongs in Sector 61, Educational Services ^[3]. A spa or health resort that combines its recreation facilities with rooms is classified with hotels and motels in NAICS 721110 ^[4]. The boundary matters in practice. A boutique studio that sells class packs may carry an instruction code, and a hotel's fitness wing will never appear in this class at all. A study should state the borrower's code, say whether it matches the business the loan will finance, and explain any mismatch before it relies on the class's figures. The way each loan in the dataset is matched to a class is covered in From NAICS Code to Asset Class: How SBA Loans Are Assigned, and Where Two Industries Share One Code.

The code also sets the size test. SBA's size standard for NAICS 713940 is $17.5 million in annual receipts ^[5], and the figure is a ceiling for the applicant and its affiliates together ^[6]. For SBA business loans an applicant with three or more completed fiscal years may average its receipts over the last five years or over the last three ^[7], and the receipts of each affiliate are added to its own ^[8]. Under both 7(a) and 504 an applicant may take a second route ^[9], a balance sheet and earnings test in place of receipts: counting its affiliates, it qualifies with tangible net worth up to $20 million if its after-tax net income, averaged across the last two completed fiscal years, does not exceed $6.5 million ^[10]. A single independent club is far below either line. The test becomes real for an operator that already runs several clubs under common ownership, because the receipts of every affiliated club count, and the study should present that arithmetic rather than leave it to the lender.

The Industry in the Census Counts

The Census Bureau's Statistics of U.S. Businesses gives a national picture of the code for 2022, the year of the table used here. It counted 33,232 firms operating 40,786 establishments, with 649,964 employees, annual payroll of 12,090,908 thousand dollars and receipts of 37,875,503 thousand dollars, about $37.9 billion ^[11]. The table reports those dollar columns in thousands ^[12], and it is drawn from the 2022 County Business Patterns and Economic Census ^[13]. Its business counts reach only places that carry a payroll ^[14], so a studio its owner runs alone, with nobody on the books, never enters them.

Table 1 lists every input the article's tables use. The Census counts carry their citations, as do the prime rate and the coverage floor; every other trade area, club and loan figure is a labelled assumption that a study would replace with evidence.

Rounded as shown; lines may not foot by one unit in the last place.

Table 2 turns the national counts into ratios a reviewer can hold a projection against.

Three readings follow. First, the class is mostly small operators: at 1.23 establishments per firm, the typical firm runs one location, and the average establishment took in $928,640 with 15.9 employees. Second, scale is concentrated at the top. The 135 firms with receipts of $100 million or more ^[15] ran 9.8 percent of establishments and took 29.9 percent of receipts, at $2,846,960 per establishment, about three times the all-firm average. A chain club and an independent club are different businesses that happen to share a code. Third, labour is a heavy cost: payroll equalled 31.9 percent of receipts across the code.

Two ratios put the industry on a per person basis. With 333,996,304 U.S. residents in 2022 ^[17], read from the 2022 column of the Census Bureau's Vintage 2025 file ^[16], the code's receipts come to $113.40 per resident a year, and there is one establishment for every 8,189 residents. Neither is a target for a trade area. Both are national averages over pools, rinks and clubs of every format, for one year, and receipts are counted where the establishment sits, not where its customers live. They are useful as a test of scale: a projection that has a club taking several times the national receipts per establishment, or a trade area spending far more per resident than the nation, needs an explanation.

The last row of Table 2 measures something else. The Census Bureau's Service Annual Survey publishes revenue in millions of dollars ^[20], by year from 2022 back ^[19], for the wider NAICS 713 subsector of amusement, gambling and recreation industries, and it shows that subsector's revenue falling from 145,699 million dollars in 2019 to 105,351 million in 2020 ^[21], a change of 27.7 percent. That figure includes casinos and amusement parks and is not a fitness-only series. It is used later in this article only as the size of a historical revenue shock, applied to the mini-example as a stress.

The Demand Model: From Fitness Dollars to Memberships

One way to size a gym market is to multiply adults by a membership rate. The weakness of that method is the rate, which a study must take from somewhere and then defend, and a rate borrowed from a survey the lender cannot inspect is hard to defend. The approach set out here avoids borrowing one. It starts from public dollars and works back to memberships. It answers a narrower question, how many memberships the trade area's spending on fitness facilities would buy, and it leaves the study to reconcile that answer with a count of the clubs on the ground.

The model has six steps, each with its input named in Table 1.

1. Receipts per resident equal the code's national receipts divided by the national resident population.
2. Fitness receipts the trade area supports equal its residents, times receipts per resident, times an income index, times one plus the growth in receipts per resident since 2022. The income index is the trade area's median household income divided by the U.S. median, which the American Community Survey puts at $84,780 for 2025 ^[18].
3. Dues dollars equal those receipts times the share paid as membership dues.
4. Memberships equal dues dollars divided by twelve times the average monthly dues charged across the trade area's clubs.
5. The implied membership rate equals memberships divided by residents.
6. The subject's fair share equals memberships times the subject's share of the trade area's fitness floor area, taken from the competitor census.

Table 3 works the steps for an assumed trade area of 55,000 residents.

In the base column the trade area supports $7,415,604 a year of fitness receipts, of which $4,820,143 is paid as dues. At assumed market dues of $48 a month that buys 8,368 memberships, an implied rate of 15.2 per 100 residents, and an 18 percent share of floor area gives the subject 1,506 of them.

The other columns show where the method bends. Raise the market's average dues by ten dollars and the same dues dollars buy 6,925 memberships, a rate of 12.6: a trade area of more expensive clubs supports fewer members, so a study cannot raise its dues assumption and keep its member count without new evidence. Lower the income index by a tenth and the count falls to 7,531. Assume that dues are a smaller share of receipts, and it falls to 7,081. Shrink the trade area by a fifth and the subject's share drops to 1,205 even though the implied rate is unchanged, which is why the boundary has to be drawn before any of this arithmetic is done.

The implied rate is a count of memberships, not of people. A household holding two memberships counts twice, and a resident who belongs to a club outside the trade area is counted where the club is. The dues share is the weakest input: the SUSB table carries no split of receipts by source, so the share is an assumption the study must support from the operating statements of comparable clubs. The income index is applied one for one, which is itself an assumption, and the growth since 2022 should be indexed with a cited series rather than guessed.

For those reasons the dollar route is a check, not a forecast. Its partner is the bottom-up count. The study lists every club, studio and recreation centre inside the boundary, estimates each one's members from its floor area, posted prices and any disclosed figures, and sums them. If the two estimates of market memberships differ by more than a stated margin, the study should say which it believes and why. The residual test, which asks whether a newcomer can find members the existing clubs do not already hold, is worked in Trade Area and Demand Methods: Capture Rates, Penetration Rates and Gravity Models, and the field count of competitors in Supply and Comparable Analysis: Counting Competitors, the Pipeline and the Properties a Study Leans On.

Attrition: The Base Is Sales Divided by Cancellations

Demand says how large a share a club could hold. Attrition says what it costs to hold it. Define monthly attrition as the members who cancel in a month divided by the members enrolled at its start. Four results follow from that one rate.

1. The share of a starting group still enrolled after twelve months is one minus the monthly rate, raised to the twelfth power.
2. The average life of a membership, in months, is one divided by the monthly rate.
3. A club that sells a steady number of memberships each month settles at a base equal to monthly sales divided by the monthly rate. At that level it cancels exactly as many members as it signs.
4. Starting from its presale members, the base moves toward that level each month by the same fraction of the remaining gap: after t months the gap left is the opening gap times one minus the monthly rate, raised to the power t. In the first year sales run at a multiple of the stabilised rate for the opening campaign.

Table 4 applies those results with sales held at 45 a month after the first year and the monthly rate varied around an assumed 3.0 percent.

At 2.0 percent a month, 78.5 percent of a starting group is still enrolled a year later, the average membership lasts 50.0 months and the club stabilises at 2,250 members. At 4.0 percent, 61.3 percent remain after a year, a membership lasts 25.0 months on average and the base settles at 1,125. Sales are the same in every column, 540 a year, and so are cancellations once the base is stable; the base is the only thing that changes. A two point swing in a rate that nobody can observe before opening halves the stabilised base.

The ramp rows carry a less obvious lesson. At a low attrition rate the stabilised base is large and is approached slowly: at 2.0 percent the club holds 71.7 percent of its eventual base at month 24, against 92.4 percent at the 3.0 percent base case. At a high rate the opening campaign can oversell, so that the club peaks early and then drifts down, which is what the 106.2 percent reading at 4.0 percent shows. A projection that pairs a low attrition rate with a fast ramp has combined two assumptions that pull in opposite directions.

The last row ties the two models together. At 3.0 percent the stabilised base is 99.6 percent of the fair share Table 3 produced, so the assumed sales rate is consistent with the market. At 2.0 percent the same sales would carry the club to 149.4 percent of its fair share, which the market does not support: either sales must fall as the club approaches its share or the club must take members from its competitors. A study should run that check in every scenario it prints.

Evidence for attrition comes from member records. For an operating club, the study should take the monthly roll for at least two years and show opening members, new joins, cancellations, freezes and closing members, reconciled to the billing register, with the rate computed the same way every month. For a new club, the evidence is the rolls of comparable clubs: the sponsor's other locations where it has them, or a franchisor's figures where the franchisor makes a financial performance representation, which the FTC rule requires to rest on a reasonable basis and written substantiation ^[27]. A franchisor that makes no such representation must say so in its disclosure document ^[28], and a study should then treat brand averages offered informally with care.

State contract law also shapes attrition. In New York a health club contract may not run longer than 36 months ^[29], instalments must fall due at intervals of no more than a month ^[30], the buyer has a three-day window to cancel after receiving a copy of the contract, counted in business, not calendar, days ^[31], and the buyer may later cancel for a significant disability lasting more than three months or a move more than 25 miles from the seller's clubs, among other reasons ^[32]. Cancellations of that kind happen whatever the club does, so a study should treat them as part of the attrition it cannot manage away, and it should not count the unexpired term of a multi-year contract as revenue the club has locked in.

The Metrics a Lender Reads, and the Evidence Behind Each

A credit officer reading a gym study needs a small set of operating measures, each defined once and each tied to a document. The list below gives each metric, the record that evidences it and the public series or rule it can be checked against.

Members and net change. The monthly roll, with joins and cancellations shown separately. A net figure alone hides a club that is replacing a high cancellation rate with heavy selling.

Monthly attrition. Cancellations over opening members, with frozen memberships reported on their own line rather than netted away. The rate should be stated with its definition, because a club that counts only members who stop paying will report a different number from one that counts written notices.

Average dues and revenue per member. The billing register, cut by plan type, compared with a survey of posted prices at the clubs in the competitor census. Revenue from training, retail and other sales should be shown as a share of dues so that a reviewer can see how much of the forecast depends on members spending beyond their dues.

Sales per month. The denominator of the stabilised base, taken from the sales log for an operating club and from the opening plan for a new one, and checked against the fair share from the demand model.

Payroll share. Payroll, taxes and benefits over revenue, set against the code's national payroll share of 31.9 percent in Table 2. The national figure includes rinks and pools and chains of every size, so a study should explain a large gap rather than force agreement.

Occupancy and fixed cost share. Rent and occupancy cost over revenue, and all fixed costs over revenue. In a club these shares are the source of operating leverage: when most costs do not move with members, a small fall in members is a large fall in cash flow. How each expense line should be documented is taken up in Operating Expense Evidence: Building an Expense Budget a Credit Officer Can Trace.

Revenue per square foot and members per thousand square feet. Both come from the floor plan and the roll. The second is also a capacity measure, which matters for eligibility, as the next section explains.

Prepaid dues and the state security. A study should carry dues collected in advance as service still owed, not as revenue already earned. The billing design also matters under state law: in Florida monthly billing on stated terms removes the security requirement ^[33], and in New York a monthly dues option can do the same ^[34], as the state section below sets out.

Franchise costs and disclosures. The franchise disclosure document carries the fee table, the estimated initial investment and the outlet history, each summarised in Table 5. SBA states that its franchise directory helps lenders and CDCs evaluate the eligibility of small businesses that operate under a franchising agreement ^[35], so a franchised borrower's study should name the brand's entry and its agreement.

Coverage. The cash flow available for debt service over annual debt service, at stabilisation and at the run rate a lender's own test date requires.

Conventions. This article follows the conventions of the Loan Analytics worked examples. Coverage is tested against the program floor the site's program page states, where the program has one, and against a stated 1.25x lender assumption, and the higher of the two binds. Equity is measured at the loan the cash flow supports, with fees recomputed on that loan. An acquisition is tested on the seller's historical earnings, not on projections.

For coverage the floor this series uses is the one the site's SBA program page states: "Under SOP 50 10 8.1, standard 7(a) loans need at least 1.15x business coverage, and startups must reach it within two years of funding" ^[26]. Paired with it is the 1.25x the series assumes for the lender, and whichever is higher binds. For a gym the ratio alone says little. The cushion that matters is how many members, or how much attrition, the club can lose before the ratio falls to the binding minimum, and the mini-example later in this article prints both. The construction of the ratio is set out in the debt service coverage article.

Eligibility Rules That Bear on a Fitness Center

The SBA rule most specific to this class is a membership rule. Among the businesses 13 CFR 120.110 lists as ineligible are ^[42] "Private clubs and businesses which limit the number of memberships for reasons other than capacity". The test is the reason for a cap, not the existence of one. A club that stops selling when its floor is full stays inside the rule; a club that caps its roll to keep it exclusive, or for any reason other than room, falls outside it. A study should quote the borrower's written membership policy and, where the policy allows a cap, show the capacity arithmetic behind it from the members per thousand square feet the floor plan supports.

Ownership form matters too. Non-profit businesses are ineligible, though their for-profit subsidiaries are eligible ^[43], so a community recreation centre run by a charity cannot borrow under 7(a) or 504 in its own name. USDA draws a related line for its guarantees. The list of projects 7 CFR 5001.115 shuts out of the Business and Industry and other programs ^[44] reaches recreation facilities of a commercial character used mainly for recreation, water parks among them, where the owner is a public body or a non-profit ^[45]. A study for a public or charitable owner should test its project against that list before it counts on the guarantee.

Real estate brings the passive business rule into play. A company that holds property to rent out, without itself using what the loan buys or improves, is barred, with an exception for the Eligible Passive Company ^[46]. Where a club's building sits in a separate company that rents it to the club, that landlord company qualifies only if it spends the proceeds on property it lets to the operating club for the club's own business, or to fund a transfer of ownership between the people who already own it ^[47]. The rent the club pays that company is capped at the loan payment plus the landlord company's own direct holding costs ^[48]. The lease, counting renewals that only the club can trigger, has to last at least as long as the loan ^[49]. If the same 7(a) loan pays for the club's working capital or other operating assets too, the club signs as co-borrower, not merely as guarantor ^[50]. Owning more floor than the club uses brings in the occupancy tests. Buying an existing building, the borrower keeps at least 51 percent for itself ^[51]; building new, it keeps at least 60 percent and can let no more than 20 percent on a permanent basis ^[52], and the gym owner's file should show that it "plans to permanently occupy and use within three years some of the remaining space not immediately occupied and not permanently leased" ^[53], with a ten-year horizon for filling every square foot not let on a permanent lease ^[54]. Where a physical therapy practice or a café shares the building, the study should map the floor area each occupies.

Maturity is tied to what the money buys. 13 CFR 120.212 asks for the shortest term that suits the borrower's capacity to pay ^[25] and caps it at a decade unless real estate, or equipment expected to last beyond a decade, is being financed or refinanced ^[24]. Where fit-out or equipment takes time to install, the term can stretch by a reasonable interval of no more than 12 months to finish the work ^[55]. In a leased club nearly every budget line is fit-out, machines or working capital, so the study should print the service life its equipment list supports and size the term from it, not from the longest maturity the rule allows. The program's own tests are read in the 7(a) method article.

The 504 program suits a different club. SBA's program page frames it around major fixed assets financed for the long term at a fixed rate ^[56], lists machinery and equipment among the assets it finances where the remaining useful life is at least 10 years ^[57], and keeps working capital and inventory outside what the loan may pay for ^[58]. A club buying or building its own premises fits that design; the fit-out of rented space and the cash that carries the opening months do not. The project split and the job test are in the 504 method article.

Two passages of 13 CFR 120 name the class's code directly, both written for special programs. In the ARC Loan Program section, applications from businesses whose primary code is 713940 are identified and reviewed by SBA under the statutory restriction on assistance to swimming pools ^[59]. In the rules for pooling 504 first lien loans, SBA must review the documents of a pool loan to a business in the code before an interest in that loan is added to a pool ^[60], and a loan that finances the acquisition, construction or renovation of a swimming pool, among other facilities, is not eligible for pooling ^[61]. Neither passage sets an eligibility test for an ordinary 7(a) loan or 504 debenture, but both point to the swimming pool as the feature that draws SBA's attention, and a study should describe any pool's cost and use separately.

A club in a small town may look to USDA's Business and Industry guarantee instead. Provided the project meets the rule's other criteria, B&I uses may include buying and developing land, buildings or infrastructure for commercial enterprises, public or private ^[62], and names tourist and recreation facilities run as commercial enterprises among its project types ^[63]. The site must also be rural on the rule's population test, which leaves out any city or town of over 50,000 residents together with the urbanized fringe contiguous to it ^[64]. That fringe is not shut out in every case: a part of it found to be rural in character still counts ^[65], and that finding belongs to the Under Secretary of Rural Development, made for one project at a time ^[66], so a club on the edge of a larger city should ask before it assumes either answer. The B&I method article covers what the agency tests. SBA's rules, for their part, reserve to the agency the right to see a feasibility study before it commits ^[67].

State Health Club Laws: A Gate on Opening and on Sale

State law can reach a club before it sells its first membership. Florida and New York show two forms such a gate takes, registration with security in one and security scaled to the contracts sold in the other, and Table 6 lays the two regimes out row by row.

In Florida each health studio must register every business location with the Department of Agriculture and Consumer Services ^[68], and a local business tax receipt is issued or renewed only on an active registration certificate ^[69]. A studio that sells contracts must also maintain a bond of $25,000 for each separate business location ^[70], or furnish a letter of credit or a guaranty secured by a certificate of deposit instead ^[71]. Among the statute's exemptions, the security is waived for a studio that collects payment monthly for future services, provided any service fee is reasonable and fair and the contract meets the statute's other terms ^[33], and for a studio that has operated in compliance under the same ownership and control for the most recent five years with no adjudication against it and a satisfactory complaint record ^[72]. A studio that sells before opening and sets up an escrow for those funds must give the department a copy of it ^[73]. A change of ownership makes the studio a new one for the security rules, with stated exceptions ^[74].

New York sets the security by the length of contract the club sells. Before it enters into any contract, a club must file and keep a bond, letter of credit or certificate of deposit with the Secretary of State, unless an exclusion applies ^[75]. The sum is $50,000 where contracts run twelve months or less ^[76], and $75,000 or $150,000 for longer terms up to 36 months ^[77]. Amounts are added for clubs with three or more locations or for multiple franchises of a common franchisor ^[78]. The club is treated as new, and must post its own security, when it changes ownership or when thirty percent or more of its stock changes hands ^[79]. A contract is unenforceable against the buyer if the club has not complied ^[80]. A club may be excluded if it offers a monthly dues option for each plan, subject to conditions that include no automatic renewal and terms of twelve months or less ^[34], and monthly dues, initiation fee included, of no more than $150 ^[81]. A contract sold for a planned club or one under construction is voidable at the buyer's option if the club is not available within one year of signing ^[82].

For the lender, these rules touch three parts of the study. The dues design in the revenue model, monthly or prepaid, decides whether security is owed and how much. The opening schedule matters because presale members may walk away if the club opens late, and in Florida the funds collected before opening may sit in escrow rather than in the sources of funds. And a purchase of an existing club reopens the security question in both states, a cost the buyer's budget must carry where security is owed. The coverage test for a purchase also changes, since it runs on the club's past results under its seller, as Buying a Business With a Loan: Why Coverage Is Tested on Historical Earnings, Not the Buyer's Plan explains. Both states matter to the class's SBA record: the class's national 7(a) cell shows 790 ^[83] approvals with the project in Florida and 617 ^[83] in New York.

The Class's SBA Record: Volume, Loan Size, Programs and Franchise Codes

Every figure in this section comes from the Loan Analytics dataset, assembled from the SBA's loan by loan program files in the way How the Loan Analytics SBA Loan Dataset Is Built: Six FOIA Files Reconciled to SBA's Year-End Reports describes. A class is the borrower's industry code, so every count here is the NAICS 713940 record, rinks, pools and racquet clubs included. Counts are gross approvals, cancelled approvals included.

Gyms and the other businesses of the code received 11,604 ^[83] 7(a) approvals worth $4,703,342,200 ^[83] across the ten approval years from 2017 through 2026. The typical approval was small: the median sits at $246,000 ^[83], and half of all approvals fall between $75,000 ^[83] and $494,625 ^[83]. On the 504 side the same years produced 916 ^[84] approved projects whose debentures total $1,027,456,000 ^[84], the middle one at $786,000 ^[84]. So 7(a) does the bulk of the lending to the class, while 504 handles a smaller number of bigger projects. Those counts and medians sit comfortably with the program rules described above, a leased club's fit-out and working capital on the 7(a) side and an owned building on the 504 side, but the file does not record why any borrower used one program rather than the other.

By year the 7(a) count moved in three phases. It stood at 1,244 ^[83] approvals in fiscal 2017 and 1,243 ^[83] in fiscal 2019, fell to 843 ^[83] in fiscal 2020, 786 ^[83] in fiscal 2021 and 838 ^[83] in fiscal 2022, then rose to 1,606 ^[83] in fiscal 2025 before easing to 1,382 ^[83] in fiscal 2026. The 504 count was steadier, at 82 ^[84] in fiscal 2017, 129 ^[84] in fiscal 2022 and 92 ^[84] in fiscal 2026. Nothing in the loan file explains a change in volume, and the dataset's report assigns these swings no cause, so this article offers none.

The franchise field is where the class stands out. SBA's loan files carry a franchise code and, where one applies, a franchise name ^[85], and 48.47 percent ^[83] of the class's 7(a) approvals carry a code, against 9.72 percent ^[84] of its 504 approvals. For comparison, the 7(a) share is 64.69 percent ^[86] for hotels and motels, 48.59 percent ^[87] for limited-service restaurants, 10.53 percent ^[88] for full-service restaurants and 3.06 percent ^[89] for car washes. The share counts approvals that carry a code; it does not say which brand, what the agreement costs or whether an uncoded approval is truly independent. It does say that for roughly half of the class's 7(a) lending, the franchise documents in Table 5 are part of the file a study should read.

The class has a data page under each program, the 7(a) page and the 504 page. Table 7 gathers the dozen values the rest of this article draws on and prints the dataset key behind every one.

Loan Data Behind This Article

Every figure in this table comes from the Loan Analytics loan dataset, analytics-loan-data freeze-3 (commit 360c856), and carries its key. SBA rates are approval-cohort floors and are withheld when fewer than 30 loans stand behind them.

Reading the Class's Charge-Off and Cancellation Floors

Outcomes are measured on approval cohorts and printed as floors. The charge-off rate takes the loans from the 2017 through 2021 approval years that disbursed and asks how many have been written off so far; open loans carry no disclosed status, so every later charge-off can only raise it. The 7(a) floor for the class is 9.48 percent ^[83], against a program floor of 6.33 percent ^[90] over every class in the same cohort. Of the class's 4,674 ^[83] disbursed loans in that cohort, 1,276 ^[83] are still open with their status withheld.

A fixed horizon gives the same answer. If a charge-off counts only when it came inside five years of approval, gyms reach 5.28 percent ^[83] and the whole 7(a) cohort 3.72 percent ^[92]. Weighted by dollars, the class has written off 4.96 percent ^[83] of what it was approved on loans that disbursed; the program as a whole, 1.95 percent ^[93]. Whichever way it is counted, the class sits higher.

Cancellation, which is an approval that ends before any money is disbursed, looks different. The class's 7(a) cancellation floor for approvals in fiscal 2017 to 2024 is 11.56 percent ^[83], close to the program's 11.24 percent ^[94], and its ceiling, the reading that treats every approval not yet drawn as a future cancellation, is 13.03 percent ^[83] beside the program's 12.24 percent ^[95]. A cancellation is not a failure of the business; the cancellation article explains why the two measures must be read apart.

The 504 record is quieter. Gyms financed through 504 show a charge-off floor of 0.58 percent ^[84], which rests on 2 ^[84] written-off loans out of 346 ^[84] that disbursed; the whole 504 cohort stands at 0.35 percent ^[91]. Over the first five years after approval alone, the gym figure is 0.00 percent ^[84] and the program's 0.17 percent ^[96]. Its cancellation floor of 12.87 percent ^[84] sits beside the program's 13.60 percent ^[97]. With so few charge-offs, the 504 floor should be read as small, not as precise.

What the floors can say is limited and specific: the class's 7(a) loans from those approval years have been written off so far at a higher rate than the program's, on counts large enough to print. What they cannot say is longer. They give no cause, and the dataset's report offers none. They do not separate franchised from independent clubs, a leased club from an owned one, or a gym from an ice rink in the same code. A floor of this kind can only rise as loans age, the point made at length in The Approval-Cohort Charge-Off Floor: Why a Published SBA Loss Rate Can Only Understate, and it is no default probability for a single borrower. How the class compares with the other classes of the series is set out in the article on cancellation and failure across classes. For a study, the useful consequence is where to put the weight: a class whose floor sits above its program's calls for a coverage test that shows its cushions in members and in attrition, not just a ratio.

A Worked Mini-Example: One Leased Club and Its Coverage

The example takes an assumed independent club of 15,000 square feet in leased space, financed with an assumed 7(a) loan of $1,000,000 for leasehold improvements, equipment and working capital. No real estate or long-life equipment is financed, so 10 years is the longest term the rule allows ^[24]. The example assumes that ceiling; because the rule asks for the shortest term suited to the borrower's ability to repay ^[25], a study would have to show why a shorter one would not do. Pricing starts from the bank prime rate as the Federal Reserve's H.15 release printed it for November 2 to 6, 2026, 7.00 percent ^[22], and adds an assumed 2.75 points, under the three point cap for any 7(a) loan larger than $350,000 ^[23]. The loan is larger than three quarters of the class's 7(a) approvals, whose 75th percentile is $494,625 ^[83], so it describes a bigger club than the class's typical borrower. Every other input is in Table 1: 45 sales a month once stabilised, double that in the first year, 3.0 percent monthly attrition, 600 presale members, $50 average dues with training and retail adding 20 percent, and fixed costs of $740,000 a year.

In the base column the club stabilises at 1,500 members and $1,080,000 of revenue, leaving $232,000 of cash flow against $156,924 of debt service, a coverage of 1.48x. Measured against the 1.15x that the site's SBA program page names as its floor ^[26] and the lender's assumed 1.25x minimum, the club passes on paper. The ratio overstates the room. The club needs 1,445 members to meet the binding minimum, only 3.8 percent below its stabilised base, and in attrition terms the minimum is met only while the monthly rate stays at or below 3.11 percent against the 3.0 percent assumed.

The shock columns show what that thin cushion means. Attrition half a point higher cuts the base to 1,286 and coverage to 0.59x. Selling fifteen percent fewer memberships each month has almost the same effect, 0.55x, because the base is sales divided by attrition and either side of the fraction moves it. Dues 10 percent lower give 0.86x. A two point rise in the rate, to 11.75 percent, costs less, taking coverage to 1.36x, because debt service is a small part of the club's costs. Revenue cut in the proportion the 713 subsector lost from 2019 to 2020 leaves the club unable to cover its operating costs at all.

The second year is the harder test. At month 24 the base has reached 1,385 members, and coverage at that run rate is 1.01x. Read against the site's SBA program page, which gives a start-up two years from funding to get to its 1.15x floor ^[26], the example falls short on this article's reading, which sets the month 24 run rate against that floor, and the shortfall is worse than it looks, because month 24 after opening arrives later than the second anniversary of funding whenever the build-out takes months. A study in that position should show either evidence for a faster opening, such as a presale count with deposits, or a working capital reserve sized to carry the club to stabilisation, and it should say which.

Table 9 reads the same club through the metrics listed earlier.

The club holds 100.0 members per thousand square feet and takes $72.00 of revenue per square foot. Its payroll share of 30.6 percent sits near the code's national 31.9 percent, which is the kind of agreement a reviewer looks for. Fixed costs are 68.5 percent of revenue, which is why a small change in members becomes a large change in cash flow. Revenue is 1.16 times the national receipts per establishment, a level a study would support from comparable clubs of similar size. The full version of this analysis, with a cost budget, a ramp by year and a reserve test, is the Hawaii gym worked example; the shock sizes themselves are discussed in the sensitivity article.

The File a Gym Study Hands the Credit Officer

Gathered together, the method above produces a short list of exhibits. Each should be present, sourced and consistent with the others.

1. The borrower's industry code with a note on whether it matches the business, and the size arithmetic for any operator with affiliated clubs ^{[5] [8]}.
2. The trade area map and the dollar route to memberships, with the national receipts and population counts cited and every local input sourced or labelled.
3. The competitor census and the posted price survey, reconciled with the dollar route within a stated margin.
4. The attrition evidence: monthly rolls for the borrower or its comparables, with the definition of a cancellation and the treatment of freezes.
5. The ramp, month by month, with sales in the opening campaign shown separately from stabilised sales, and the check that the stabilised base stays inside the fair share.
6. The metrics table set against the national ratios, with any large gap explained.
7. The eligibility memo: the written membership policy and its capacity basis ^[42], the ownership form, the holding company structure where real estate is held apart, and the term the assets support.
8. The state file: registration, security, the contract form and the treatment of presale funds, for the club's state ^{[68] [75]}.
9. For a franchised club, the franchise agreement and the disclosure document items in Table 5.
10. The class's loan record printed with its floors, its cohorts and the code's breadth.
11. Coverage at stabilisation and in the second year, with the cushion stated in members and in monthly attrition, against the program floor and the stated lender assumption.

A study that delivers those exhibits does not prove that a club will succeed. It shows the lender which two or three numbers the loan depends on, where each came from, and how far each can move before the loan stops paying.

Related Pages on Loan Analytics

• The Loan Analytics methodology series (all articles)
• How a feasibility study is done: the Loan Analytics methodology
• SBA feasibility studies (7(a) and 504)
• USDA feasibility studies
• Bankable feasibility studies for conventional loans
• Fitness center: loan data and feasibility studies
• Loan data by state
• Loan data by asset class
• Worked examples (case studies)
• Worked Example: SBA 7(a) Gym Feasibility Study in Hawaii

Commission a Feasibility Study

Loan Analytics prepares lender-grade feasibility studies for SBA 7(a), SBA 504, USDA Business and Industry, conventional and EB-5 financing, built on the methods this series sets out. A study is not an appraisal: it tests whether a project's market, costs and cash flow can carry the debt a lender is asked to approve. To discuss a study for your project, contact Loan Analytics.

Daniel Smith, MAI, Loan Analytics