Recreation Centre Loan
If you've always dreamed of owning your own rec centre, you'll need finance. Find out how to apply for a recreation centre loan.
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Recreation centres can include indoor and outdoor sports, recreation opportunities and social activities including group sports, children's and youth programs and aquatics facilities. Run well, a rec centre can become a social hub for a local community, encouraging increased sports participation and furthering the wellbeing of all members of the community, regardless of their age or abilities.
Recreation centres can be a profitable business venture and can appeal to investors and owner-operators alike. With high entry costs and a specific skill set required to successfully operate a rec centre, you'll need finance and professional advice. Find out how to achieve your dream of owning your own recreation centre.
Business loans you can apply for
Australia's sports and recreation industry
Australia's sports and recreation industry continues to experience increased demand and overall growth year on year. In the five-year period to 2016, the industry experienced an annual growth rate of 1% and is forecast to grow at a rate of 1.8% for the period ending 2021.
High growth rates and little indication that the sports and recreation industry will slow down anytime soon makes the rec centre market an attractive one for investors. However, investors face tough entry barriers in a tightly competitive market, with well-positioned government-owned community centres able to offer subsidised facilities to local communities through government funding initiatives.
Regardless, it is certainly possible for independent recreation centres to establish a firm hold in the community, provided they are run well, reasonably priced and take advantage of emerging fitness trends to offer a point of difference in this tough industry.
Capitalising on recent fitness trends
To differentiate your recreation centre from your competitors, consider how you can offer facilities to take advantage of recent and emerging fitness trends. Social sports remain a firm favourite, breaking up the working week by giving people the opportunity to socialise. Consider childcare options to make adult social sports more easily accessible, perhaps by providing fully supervised children's sports classes to coincide with the adult sessions.
By becoming familiar with current fitness trends and incorporating this knowledge with an understanding of the needs and desires of the local population, you will be able to set your recreation centre apart from the competition and build a strong business in a competitive industry.
Freehold investment versus running your own business
Running the business yourself
If you are planning on running the recreation centre business yourself after purchasing the facility, you will need to convince the lender that you have the appropriate qualifications and experience to run a successful rec centre business. Consider the following:
- Prepare a comprehensive business plan including cash flow forecasting
- Use an accountant to undergo an in-depth analysis of the business plan and to account for any possible weaknesses or difficulties
- Conduct due diligence on the rec centre property itself, its location and local competition
- Consider how you can differentiate your business from local competitors
- Conduct an examination into the local population and consider how you can tailor your offerings to suit their needs. For example, your focus would change for an ageing population compared to one mainly comprised of young families
- Provide evidence of at least five years' experience in a managerial or similar role in the sports and recreation industry
- Highlight any relevant training and qualifications you have earned
Buying a recreation centre as an investment
If you plan to purchase a recreation centre as an investment only, look for a facility with a long-term lease to a stable tenant. Provide evidence of full, prompt rental payments over at least the last two years, along with an indication that the current tenants plan to remain within the business for at least the medium term.
The lender will also want to know why the current owners are selling the business, keeping in mind that the reasons stated by the current owners may not show the full picture. Seek your accountant's help in closely examining the financial records of the business for at least the last two years to discover any potential financial discrepancies or other indications that the business is failing or is being mismanaged.
Choosing a recreation centre
Location and zoning
As a community hub and a facility that people must attend in person, the location of a rec centre is vitally important. Ensure that your chosen location is close to residential areas and easily accessible by cars and public transport, with ample street exposure and plenty of on-site parking.
Similarly, make enquiries about the zoning of the area and find out whether there are any plans to change the zoning in the future. Mixed commercial and residential zoning is ideal for a recreation centre, allowing you to conduct your business while placing you conveniently close to residential properties.
Finding finance for a recreation centre
Standard loan terms
Recreation centres are considered by most lenders as specialised commercial properties, which can attach more onerous loan conditions than standard commercial loans. While commercial lending is largely unregulated, leaving lenders free to consider loan applications on a case-by-case basis, the following loan terms could apply:
- Loan amount of up to 70% of the value of the property if purchasing a freehold recreation centre. The loan amount could increase, potentially to 100% of the property value, if applying for a business loan with guarantor or if offering residential property as additional security for the loan.
- Maximum loan term of 15 years, or up to 30 years if secured by residential property.
- Interest rates can vary considerably between lenders and will ultimately be affected by the strength of your application and the value of your security.
Recreation centres as specialised commercial real estate
Since rec centres are considered specialised commercial real estate, lenders can be conservative about offering recreation centre loans. This is because specialised properties tend to be purpose-built and cannot readily be converted to other uses. When considering a business loan application, lenders are concerned to see how they can recoup their money should the loan default. A custom-built recreation centre, particularly one with specialised facilities, can take much longer to sell should the need arise.
However, even the most risk-averse lenders will still consider a recreation centre loan to a strong applicant with plenty of relevant experience who can present a comprehensive business plan, or with a stable, long-term tenant in place.
Maximising your chances of loan approval
The key to maximising your chances of having your recreation centre loan application approved is to present a strong, comprehensive and well thought out application that mitigates the lender's concerns in advance. Put yourself in the shoes of the lender and consider the concerns a lender might have about your application.
After all, much of a commercial loan application is essentially a job interview, with the lender seeking to be convinced that they are dealing with a strong applicant with the skills, knowledge and experience required to run a successful business and service the loan in the long-term.
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