Fitness would suffer from mid-2022 from a worsening of the conditions to access bank credit, which gym operators denounce that it is granted “with a dropper”.
(21-2-2023). From the second half of 2022, gym operators would be finding more obstacles and worse conditions to access credit. Fitness would be among the sectors indicated by banks due to their high risk of default, their level of atomization and youth.
“The bank has closed the faucet of credit to fitness.” This is how categorical the founder and CEO of the low-cost gym chain, Smartfit, Nacho Usera, is, who claims to have detected since mid-2022 a “withdrawal” by the banks in response to the request for financing from of operators of gyms and sports centers.
The feeling of this executive, and which is shared by more operators in the sector, is that “in credit matters, fitness has been eliminated or postponed until further notice”. This would be leading to the fact that most gym chains are accessing “more expensive financing with a dropper”.
This was also warned yesterday by the CEO of the Sano Center boutique chain, Felipe Pascual, who lamented that the brand’s future franchisees are “facing obstacles from the bank that have not been seen since the last great economic crisis of 2008.” This would also show the change in attitude that the banks would have adopted with regard to fitness in a matter of a few months: “Everything that was easy in 2021 is now an obstacle course.”
FGYM RANCHS, THE MOST AFFECTED
The difficulty of access to bank financing would be widespread in the sector, although where it would be becoming more evident is in the franchise business. It would be there where the majority of operators would be finding obstacles to carry out their expansion projects.
Several chains have opted to cut the necessary investment, launching smaller, more automated and affordable business models, as a measure to ease the way for franchisees. They would also have undertaken to close agreements with the main banking entities, acting as intermediaries for future entrepreneurs. However, these practices would not be definitive solutions either, since various operators would be looking for a ‘financial partner’ that would solve the shortage of credit and make it possible to meet the growth plans foreseen.
LESS MARGIN AND MORE EXPENSIVE DEBT
Despite the foregoing, the financial analyst and consultant for Management Around Sports, Felipe Ruiz de Gauna, points out that “banks do not arbitrarily close the taps.” This economist refuses to speak of “turning off the tap on fitness”, although he admits that “if recurring defaults occur in an industry, even if the company requesting the loan is solid and pays its debts, it will be more difficult to go to the banking market”. Ruíz de Gauna gives the real estate sector as an example, in which “in 2009, the banks did not trust the construction companies and turned off the taps regardless of the individual behavior of the companies”.
Regardless of the situation of each fitness business operator, the reality is that the sector suffers from a high level of indebtedness, caused, in the first instance, by the administration’s management of the pandemic and, secondly, by cost overruns that have supposed the phenomena that stood out in the past 2022.
For his part, for the economist specialized in finance, Paco Subías, “although the operators of sports centers are now beginning to recover the number of pre-Covid subscribers, which means that they are beginning to recover their pre-pandemic income, in terms real, inflation is not being taken into account. To this are added the costs of supplies that have quadrupled, labor costs that have also increased as a result of the new SMI and the CPI… The conclusion is that, in general, you earn less than before and you pay more debt than before ”.
High risk of default
According to the latest Insight View report, published in mid-2022, 35% of gyms had a maximum or high risk of default. That ratio was five percentage points above the 30% of companies that presented high default risks before the pandemic. And the percentage was also higher than that of the companies that registered a low level, which constituted 34%.
According to said report, the worst financial performance was recorded especially among companies founded in the last decade, fitness being a relatively young sector, and in which many of the companies that operate today have been created in the last 15 years. Of these ‘young’ companies, up to 40% had a high risk of default, according to this report.
To the little presence of consolidated companies, the enormous fragmentation of the sector, with 77% of micro-enterprises, is added a strong dependence on external financing, which represents 69% of the sources of financing. Characteristics that place the sector in the banking spotlight.
RISK CONTAINMENT BETWEEN BANKS
“Banks no longer finance 70% of operations as before and prefer to take positions in which external resources are not the majority,” says Felipe Ruiz de Gauna in this regard. This position would not match the high difficulties in paying debts and the large number of new projects without positive history, and therefore guarantees, that abound in the sector.
For the CEO of MAS, María Ángeles de Santiago, however, this is not a matter of fitness itself. The expert adviser affirms that this phenomenon “happens in all industries. Fitness is an attractive, friendly sector, but the businesses that operate in it must be profitable and now many operators are not achieving it”. María Angeles de Santiago urges people to avoid the tendency to ‘demonise’ the sector in general and urges “in any case, to talk about individual cases”.
Alternatives to banking
Whether it is a collective or individual phenomenon, fitness has difficulties accessing bank credit and, faced with this situation, the economist Paco Subías points to alternative ways of operating: “the first thing is to reanalyze the economic viability, that is, if the initiative is business or not And if it is a business and the bank does not provide credit, there are three options: that the partners make a capital increase, that the contribution be made by a third investor, or seek alternative financing and parabanking”.
Another option that Subías adds are “mergers between companies that may imply taking advantage of synergies or eliminating locations that are not very profitable or not at all profitable, as well as the entry of venture capital.” It should be remembered that there have already been cases of this type of action in the sector in recent years and the analysts consulted anticipate that these practices will proliferate and accelerate during this 2023.