Business, Main Street / SMB

How to Underwrite a Gym, Fitness Center or Studio

Underwrite a gym or studio by building a member cohort view: active members, monthly joins, cancellations and freezes, then test whether recurring dues alone cover rent, payroll and equipment payments. The key metrics are net member growth after churn, dues share of revenue, revenue per member, and occupancy cost as a share of revenue.

What makes fitness gym and studio underwriting different

A fitness business sells access and coaching on a monthly subscription, but members leave constantly, so the gym runs on a treadmill of its own: marketing must bring in enough joins each month to replace cancellations. Models differ sharply. High-volume, low-price clubs need thousands of members and large boxes. Boutique studios such as cycling, yoga or strength concepts charge much more per member and depend on class utilization and instructors. Personal training studios depend on individual trainers. Rent on large spaces is a heavy fixed cost, cardio and strength equipment wears out on a cycle, and enrollment and annual fees can make revenue look stronger in January than it is all year.

Lenders see gyms as consumer discretionary businesses with high fixed costs and favor franchised concepts with long operating histories, documented unit economics and SBA eligibility. They size debt on trailing dues revenue, discount training and retail income, and look hard at lease term. Equity buyers, including multi-unit franchisees, focus on the maturation curve: new locations often take time to reach a stable membership, so a buyer may pay for a club still ramping up. A lender will generally not credit that ramp and instead wants equity, reserves or guarantees to carry the location until membership stabilizes.

Key metrics

Active members and net adds

Joins minus cancellations each month show whether the base is growing or shrinking, which headline revenue can hide when prices rise.

Monthly attrition rate

Churn sets the marketing spend needed just to stay flat and is the best early warning of a weakening club.

Dues share of revenue

Recurring dues are more durable than personal training, class packs, retail or one-time enrollment fees.

Lenders often focus their sizing on dues revenue and haircut ancillary income.

Revenue per member

Combines price and add-on spend, separating a high-value boutique model from a high-volume, low-price model.

Occupancy cost as a percentage of revenue

Rent on a large footprint is fixed, so a modest membership decline can flip the club to a loss.

Class utilization

For studios, filled spots per class show whether the schedule and instructors convert capacity into revenue.

Equipment age

Cardio and strength equipment wears out and members notice, so aging equipment signals near-term capex.

How to underwrite it, step by step

Export membership software data for active members, joins, cancellations, freezes and delinquent accounts by month for at least two years.
Reconcile dues revenue to billing processor deposits and identify failed payments.
Split revenue into dues, enrollment and annual fees, personal training, classes and retail.
Build cohort retention curves and calculate monthly attrition by membership type.
Review the lease for remaining term, escalations, renewal options and exclusive use clauses.
Inspect equipment, record ages and set a replacement schedule and capex budget.
For franchised units, review the franchise agreement, royalty and marketing fees, remodel requirements and transfer approval.
Size debt on trailing dues-based cash flow after rent, payroll, franchise fees and equipment capex.

Due diligence checklist

Membership system reports with joins, cancellations and freezes
Billing processor and EFT statements
Revenue by category for three years
Lease agreement and amendments
Equipment list with age and lease or loan terms
Franchise agreement, franchise disclosure document and transfer approval
Trainer and instructor agreements and pay plans
Marketing spend and lead conversion reports
Liability insurance and incident history
Three years of tax returns and P&L

Key risks and mitigants

Rising attrition shrinks the member base.

Analyze cohort retention and stress dues for higher churn and lower joins.

A new low-price club or boutique competitor opens nearby.

Map local competition and pricing and model member loss in the downside case.

Rent too high for the membership base, or a short lease.

Require lease term beyond the loan maturity and test occupancy cost at lower membership.

Deferred equipment replacement or a franchisor-required remodel.

Inspect equipment, review remodel obligations and include capex or a reserve in the model.

Personal training revenue tied to a few trainers.

Review trainer concentration and agreements and haircut training revenue.

Typical financing and deal structure

Gym acquisitions are commonly financed with SBA 7(a) loans, especially for franchised concepts eligible under SBA rules, with a buyer equity injection and sometimes a seller note. Fitness equipment is usually financed separately through equipment loans or leases, which reduces cash available for acquisition debt and should be included in coverage tests. Franchisors typically must approve the buyer and may require a remodel or equipment refresh at transfer, which should be funded at closing. Multi-unit franchise operators use bank or private credit facilities secured by the portfolio. Lenders generally require personal guarantees, lease assignment, and covenants such as minimum DSCR or fixed charge coverage including rent.

Red flags

Net member count declining while revenue is held up by price increases or enrollment fees.
Lease expiring within the loan term with no renewal option.
Equipment past its useful life with no replacement plan.
Large unpaid or failed dues payments reported as revenue.
Franchisor requiring a costly remodel at transfer not reflected in the price.

Frequently asked questions

How do you value a gym?

Gyms are usually valued on a multiple of SDE or EBITDA, adjusted for lease terms and equipment condition. Buyers look closely at active members, attrition, revenue per member and the share of revenue from recurring dues. Franchised clubs with a stable member base often attract more buyers and lenders than independent gyms dependent on one owner or trainer.

What member churn rate should I expect at a gym?

Churn varies widely by concept, so there is no single correct number. Low-price clubs often see higher turnover, while boutique studios and training-focused gyms may retain members longer. Underwriters focus on the trend and on whether monthly joins consistently replace cancellations. Rising churn or falling net adds usually signals competitive pressure.

Can I get an SBA loan to buy a gym or fitness franchise?

Yes. Many gym and fitness franchise acquisitions use SBA 7(a) loans. Lenders review historical cash flow, membership trends, lease terms and equipment condition, and for franchised units they require franchisor approval and confirmation that the brand meets SBA eligibility rules. Equipment is often financed separately.

Why do lenders discount personal training and retail revenue?

Personal training depends on individual trainers who may leave, and retail and enrollment fees are less predictable than monthly dues. Lenders therefore size debt mainly on recurring dues revenue and treat other income as upside. This protects coverage if trainers depart or ancillary spending drops in a downturn.

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Educational content, not investment, credit, legal or tax advice. Benchmarks are common practitioner rules of thumb and vary by lender, market and cycle.