Two-Brain Radio: Good Debt vs. Bad Debt With Clay Ferrer

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Greg: 00:00 – Hey, it’s Greg Strauch of Two-Brain Media, and on this week’s episode we talked to Clay Ferrer. He’s the owner of Rigquipment Finance. You guys have probably heard some of the ads on here before of us talking about an amazing partner that we work with that has done phenomenal things with gym owners through financing. Even myself, I’ve utilized them in the past. We jump into good debt versus bad debt and really the differences between the two so that we can educate you more if you don’t know the difference between good debt and bad debt, and really, hey, as a business owner, what’s the first step I should be going towards if I’m acquiring good debt? Subscribe to Two-Brain Radio for the very best ideas, tips, and topics to move you and your business closer to wealth.

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Greg: 02:20 – All right, on another amazing episode of Two-Brain Radio with Clay Ferrer. He is the CEO of Rigquip. You guys have probably heard their ads on our podcast here, but welcome, Clay. How are you?

Clay: 02:34 – I’m doing well, I’m doing well, Greg. Thank you for having me.

Greg: 02:38 – Happy to. So I want to dive into some things. Of course, I’m going to give a little bit of background that maybe some people don’t know and kind of talk to you about the whole fitness side of things that you kind of have brought out in your bio and that kind of stuff. But then we’re gonna really dive into educating people that are listening and really educating people on good debt versus bad debt. I think a lot of us have heard that term before, but not many of us understand fully what good debt is in what bad debt is. I mean, I’m sure people could say, oh, credit card is bad debt and a loan could possibly be bad debt. But nobody has really gone into details about those things so I’m hoping that we can really educate people out there so they can understand those two. But before we do that, a little bit of background about you that I learned was you are a CrossFit Level 2 Trainer, is that correct?

Clay: 03:32 – That’s correct.

Greg: 03:34 – And you found CrossFit in in 2011, I believe, and you also coach at a gym or are part of a coaching staff?

Clay: 03:43 – I am. It’s funny. I actually was out at the Two-Brain Summit a few months ago, it was like the more and more conversations I hear and you know, every year as it continues to evolve, I realized that I end up, I think, coaching more classes on a weekly basis then than most of the owners that were in the audience. Which is kind of a funny way things have evolved over time.

Greg: 04:03 – No, I definitely understand that feeling. When I first showed up at the first Summit, I felt like I was the only one that was still coaching classes. And then that changed over time. With you owning a financing company, what kind of—where did you start from that kind of led you down that path to opening up Rigquip?

Clay: 04:26 – Yeah, absolutely. And you know, part of it and I think a big part of the reason why I’m still coaching is, you know, it’s something that I truly love. I’m truly passionate about it. You know, not only from a business perspective, obviously, but just from the perspective of the way, you know, it helps people change their lives. And I think I’m a actually a really great example of that. So my professional background, from before finding CrossFit was in the financial services sector. I had always been entrepreneurial by nature, very much interested in learning about business, about how businesses work. So, you know, as I was working on a college path, I knew I wanted to get into business in some form or fashion. I didn’t really know what it was. I did business school as OK that’s a great opportunity to learn, undergraduate business school, that is, you had to learn a lot about business in general and, you know, I’m gonna find my path along the way. And so as I kind of worked through that, I was really drawn towards finance in particular because I think the numbers are something that, you know, are very cut and dry in a lot of ways. It’s almost like, to a certain extent, putting puzzles together And then, you know, kinda crafting stories based on what those numbers are, and that led me down kinda further a path into investment banking. And this was, you know, I guess when I started in banking, it was, you know, 2007, 2008, at kind of the peak of the last boom, on the cusp of the great recession, the meltdown, which all occurred, you know, really starting in the financial services sector.

Clay: 06:12 – And you know, when I started down that path I viewed the financial sector in general as really the engine. Or it’s the gasoline, it’s the lifeblood of the broader economy And then, you know, what we went through in the great recession is a really good example of that When the banks and lenders and Federal Reserve and Treasury and FKC When there are issues there, that really ripples throughout the entire economy. And so I’m like, you know, I’d always viewed it as, again, at that point I still didn’t necessarily know what I want to do in business, but I viewed financial service sector as something that would allow me to learn, you know, a lot in banking in particular, learn a lot in really compact amount of time. And so, you know, the company that I went to work for, we did predominantly M&A advisories or merchant acquisitions. So effectively if you think about like a, you know, the way you hire a real estate broker to market and sell your house, it’s kind of the same thing except to sell companies. And we did M&A as well as capital raising. So helping companies, you know, raise money from institutional investors, both in form of debt and equity. And I really thought that this was, again, another way of learning a lot in a really short amount of time because in order to sell something or to raise money for something, you really have to understand it at a truly fundamental level. So really, you know, starting with the numbers And then kind of reverse engineer into how a business works, discussing with management, you learn a lot about a lot of different types of companies and services in particular

Clay: 07:46 – The companies that we worked with lent money to other businesses or to individuals. So not only are you learning about the business that lends the money you also have to learn about how they view or how they understand and analyze the people that they lend money to. Just again, viewed it as a really efficient way to learn a lot about a lot of different areas of business. And so ultimately that kind of dovetails back into where we started in 2011 when I found CrossFit, and it was one of those things where—I mean I’m a firm believer, Greg, everything in life happens for a reason. And so, you know, it was like New Year’s Day The unfortunate byproduct of banking, or at least the lifestyle was, you know, after I graduated from college, put on a bunch of weight, had a largely sedentary lifestyle, you know, didn’t quote unquote “have time” for health and wellness. And as I’m laying there, January 1st, you know, hung over, kind of at the, at the total bottom of the health spectrum. You know, there was a miracle, the CrossFit games came on TV. And I ended up like sitting there with my wife Chelsea, who’s a business partner and another huge component of Rigquipment Finance today, we got sucked into like five straight hours of like old Games reruns. And you know, again, as like serendipity or luck or whatever the case may be, the very next day I’m at the grocery store and I get a flyer on my window shield that there’s a new box open and like down the street. And so this was, you know, Tucker Jones’ handiwork of passing out these flyers in the parking lot where I come out of the grocery store, this flyer’s on the car and I was like, OK, someone’s—you know, this is a sign.

Greg: 09:36 – A sign to go ahead and make some changes in my life and get signed up. I ended up being in like the very first foundations class at Ballston CrossFit got to watch that community, you know, grow and thrive and started to learn more about the coaching side of things and the business aspect of things from Tucker and that ultimately led down the path of going through the kind of coaching development and training program and then starting to coach some classes at Ballston CrossFit. At that point, I’m now five years into banking, and always wanting to do something more entrepreneurial, and I realized like, wow, like not only am I super passionate about this and kind of view this as like the way of the future from, you know, health and wellness perspective, but there’s a massive need in this market for someone that, you know, can, can understand these small business owners, understand their business model, and then provide capital to help them grow and expand their businesses to help them, you know, build their community and help a ton of other people the same way CrossFit helped me. That was the kind of long-winded way of, you know, marrying professional background with this kind of newfound personal passion, and ultimately creating Rigquipment Finance as that vehicle that we can help, you know, ultimately a lot of people, both owners and their customers, you know, change their lives for the better.

Greg: 11:00 – Agreed. And I’ll tell you, I mean, you’ve helped me a few different times with financing. One of those things was our InBody and a few other things within the gym because I didn’t have the upfront capital and when I did have it for certain things like the InBody and I had that capital ready, I would much rather be able to personally mitigate my risk of losing all that money and then say something happens within the gym if I took that account down to zero and not having any cash on hand. So you helped me mitigate some of that risk by allowing for a, I would consider a short-term loan. It’s only a few years to have that paid off and still be able to provide value to our members and our staff with having that InBody.

Clay: 11:47 – Absolutely. And I will say, and this is definitely something I want to get to later, Greg, but you know, on one hand, certainly keeping that extra cash on hand, that cushion for inevitably we all know in business things are going to not go as planned or going to go wrong, and having that cash you might have otherwise spent in reserve is a huge safety net, and could get a lot of times be the difference between make or break for a business owner. But two, and again this is where we’re really talk more about it later is really just how financing that upfront purchase has changed the return on investment profile for you as the owner of the gym. Instead of coming out front for the full amount and then having to not only recoup the cost, but also then create profits, it stretches out the timeline significantly versus when you look at, let’s say a $200 monthly payment relative to how much additional income you generate to create a healthy return on that investment, it totally changes the math and definitely we’ll spend some more time on that later.

Chris: 12:46 – Hello my friends. It is Chris Cooper here. Since 2009 I have been writing daily blog posts, producing podcasts, videos, all kinds of stuff on social media with one mission in mind: to make gyms profitable. I came to that mission because I was an unprofitable gym owner. It almost ruined my finances and almost ruined my career, my marriage, everything. And since that day, since I made my recovery, I have wanted to help other gym owners become profitable, too. It’s part of my mission to the world because if you’re profitable, you’ll be here changing lives of thousands of your clients for the next 30 years. I think together we can have a tremendous impact. When we started mentorship, I did every single call myself. I was doing up to a thousand free calls a year and I was doing 10 calls with people who signed up for our early mentorship program, but the Incubator has been updated and improved a dozen times since then. Now the Incubator is really the sum of all of our experiences with over 800 gyms worldwide. In the Two-Brain mentorship program, we can now learn from everybody. We can collate data, we can see what’s working where and when and what the new gold standards are as they emerge. When somebody has a great idea, we can test it objectively and say, “Will this work for everyone or will it work for people on the West Coast or on the East Coast?” We can do that with little things like Facebook ads. We can also do that with operations and opening times and playbooks. All the questions that you have about the gym, we can answer them with data and with proof now. That’s the Incubator. It’s more than what I wrote about. It’s more than my experience. It is the best standard in the fitness industry, period. And I hope to see you in there.

Greg: 14:29 – Agreed. And that’s actually a perfect segue into jumping into it. So Clay, if I’m asking, I mean, for the community, anyone that’s listening, what is your definition of good debt and what is your definition of bad debt?

Clay: 14:42 – Absolutely. And I think, you know, I’ll use an analogy that I think a lot of people will be able to resonate with here ? I think you know, debt in any context, you know, particularly in the case of a business, you know, I kind liken it to a kipping pull up. Like, it’s a specific tool to accomplish more work in a shorter period of time. It can be something that can create a lot of issues if you don’t have the requisite, you know, strength and mobility and understanding the pull-up side of things before just trying to do it. But in a specific situation such as, you know, a a testing scenario or a competition where you have to complete as much work in as short amount of time as possible, or otherwise do more with less, it’s a very important tool. And so debt I think is, you know, a lot of the same way. And so when you start to think about that in terms of good debt versus bad debt, I think the best way to think about good debt is you know, utilizing other people’s capital to purchase assets that will ultimately earn you more money in the future. Bad debt, I think a lot of times is, would be debt that is used to purchase, you know, a depreciating asset or a non-cash-flow asset or kind of more separately or specifically, you know, other forms of debt that can be more punitive than they may appear on the surface. And speaking a little bit in generalities there, but a couple examples of that would be like, you know, merchant cash advance, or you know, very, very short-term, you know, working lines of credit or working capital lines, things that ultimately end up starving the business of cash to cover, you know, near-term operating expenses, which sometimes will be important but ultimately create more issues down the road than there were.

Clay: 16:37 – So, you know, I think even taking a step back and like good debt versus bad debt, I think a lot of times, business debt has this like, you know, I think mischaracterization as just being bad, and it’s like nowhere else in the world is like—so you see someone like buys a house and everyone celebrates it. You know, very few people are buying a house or buying their first house like cash only They’re using debt to purchase something they might not otherwise be able to afford if they had to finance it entirely with their own cash And then you know, or going to college You know, and you know, if you had to save your entire life enough money to go to college, and then pay it forward and then try and recoup that, it changes things That allows you to again, accomplish more in a shorter period of time. And so, but for whatever reason, you know, business debt a lot of times it’s kind of thought of as well, if they are taking on debt, they must be in trouble. And in reality it’s the exact opposite. And certainly there are cases where that might be true, but you know, more often than not, in order to even qualify for secure debt financing, that means you have a very successful and thriving business. And if you take it a step back from, you know, the micro gym, the boutique fitness space and look at all businesses, or the most successful businesses, in the broader economy or in the stock markets or otherwise, every single one uses debt in some form or fashion. It’s not a bad thing if it’s applied appropriately and with the proper controls and cushions in place. So I think there’s this kind of general misunderstanding of debt in a business context as always being bad. And that’s, you know, very much not the case.

Greg: 18:26 – No. And I will say for me personally, I mean I always thought if I have to get a business loan after being in business that that’s bad. I should have been able to generate the revenue to not have to get a loan to do that. And it sounds like from what you’re saying is getting a business loan or even student loans or as you put it, even like a mortgage for a house, those are things that are going to generate value or generate a higher net worth, it sounds like, so that those would be considered good debt.

Clay: 19:01 – Absolutely. There’s a million examples out there of people that are, you know, unhappy with their student loans and not utilizing their college degree and so there’s plenty of bad examples within those broader categories, you know, but by and large, things that are effectively an investment into your future ability to earn, whether that’s personally or a business or your ability to have cash flow generating asset or value appreciated asset, like a house. You know, oftentimes they’re going to be very smart uses of debt. Now taking, you know, buying—what’s a good example; buying a car with a car loan, not necessarily bad, but then taking a high interest credit card and putting a new set a wheels on there and a speaker system, you know, now you have paying more in debt service than ultimately the cost of the car is worth because you drive a lot and it’s worth, you know, 30 or 40% less right away. And that’s not going to actually generate any sort of income for you in the future.

Greg: 20:06 – OK. So I mean like you said, car loans, credit cards, I mean those high interest rates, those kinds of things, definitely. I could see—and I’ve had it in my personal life. I know when I originally opened the gym, I had a business credit card and there was times where I would throw equipment on there cause we need more equipment. But I would never pay off the balance completely. And I’d constantly have that interest rate going up and up. And I remember at one point I maxed out that credit card, and it was all business purchases of course, but it still was maxed out. And if we need more equipment there is no more, no way to do that. But that interest kept accruing and I had to find a way to get out of it. And of course, I mean now I’m at a point where I have it but it’s completely of course paid off and I still just have it in case anything comes up. But it’s definitely not utilized like it used to be. And those would be definitely cases of utilizing bad debt.

Clay: 21:01 – It’s good to have a safety net, like there are times when you need to rely on that and it’s good to have it. The only other thing I’d say about the credit card, you know, example is I think a lot of times people will get themselves in trouble because they get their monthly statement. They see minimum payment due, some really small amount. On one hand at least always make sure you make the minimum payments There’s no reason not to. And it will have really bad effects on your personal and business credit if you don’t make at least that minimum payment. Usually that’s like, you know, somewhere between 20 and 100 dollars a month. But I think a lot of times people misunderstand that as oh, as long as I’m making a minimum payment, you know, I’m going to be paying this thing off. The reality is that somewhere in the fine print will show you if you only made the minimum payment on a $10,000 credit card balance, it’s going to take you like 20 years and you’re going to pay like 40 grand to actually get it paid off. So credit cards and forms of revolving credit like that, you know, that minimum payment may only be sufficient to cover the interest component of the balance and maybe small amount of principal and then the next month, interest is recalculated on, you know, the same or a higher balance. So ultimately it’s not actually paying down the balance or not paying down as quickly as people may think. Particularly when you’re making just that minimum payment.

Greg: 22:20 – That makes perfect sense. With being a gym owner or gym owners that are listening, even business owners, really we can go generic with it because I think the principles that are the exact same whether they’re a service-based business or a product-based business for good debt and bad debt. What are—if a gym owner or business owner who’s just starting out, what are the forms of good debt that you would say, hey, these are the things if you don’t have the cash to just start out with it, what are the forms of good debt that you feel like people should be going towards? And then what are the ways of bad debt that people should be avoiding?

Clay: 23:00 – Absolutely. And I think the first thing that I’ll say is, particularly if they’re just starting out or maybe you’re going to go through a relocation or some sort of transition in your business. You know, anyone that’s been in business for any amount of time is going to be able to attest that things don’t happen exactly as you plan. And they don’t happen as fast typically as you plan on them to have them to happen. There are unperceived delays or unforeseen expenses. Things are—they’re more expensive and they take longer than even your worst-case scenarios, more often than not. As entrepreneurs, we tend to be optimistic or even overly optimistic people in general. And so, you know, we may make this assumption that things are going to go phenomenal from day one. It’s all going to go according to plan and just the reality is that’s not the case. Having those additional cash reserves that additional safety cushion, that additional working capital not only will help keep you out of trouble, it’ll also keep more money available for things that you can use to generate more revenue. So when you think about good debt at an onset or smart uses of debt or things like equipment purchases. Hard assets, you know, and the beauty of functional fitness, you know, business is the equipment, it’s built for durability, it’s build for longevity, you know, and by and large it can resell in the secondary market a very quickly and be at a pretty good percentage relative to the original cost. I can attest to that because we’ve resold a lot of it. Versus you know, a bad debt example in that same situation would be maybe taking debt in order to pay your coaches or pay your rent. Because those are things—they don’t have any assets backing. And so if there’s ever an issue it can’t be liquidated and there’s really nothing there, and while those things will help ultimately grow your business, that’s the kind of stuff that you should be using your equity, your investment towards to make sure you’re maximizing that return on investment and not be running up a high credit card with a bunch of operating expenses since you’ve spent all of your money to initially outfit the gym with equipment, finance the equipment and then conserve your cash to invest into the operations of the business, to growing it by paying your staff marketing, et Cetera.

Greg: 25:21 – OK. So using your cash or like you said, assets, to pay rent, to pay your coaches to pay marketing, even that kind of stuff. But to leverage a loan or business loan to help kind of make sure that you can utilize that cash that you’re using.

Clay: 25:44 – Absolutely. And I think the other way to think about it too is again, getting back to that return on investment. So whether you’re starting up or you know, whether you’ve been in business and you know, I think InBody, you know, is a good example, a sort of tool that you know, is a . So let’s say just to make numbers round, you have a $10,000 piece of equipment that you want to save up to buy and then put it into service to help grow revenue. And based on your budget, you’re able to save $1,000 a month. It’s going to take you 10 months and then you can make that $10,000 purchase, put it in service in month 11 and then start returning investment on it. That means every month for 10 months, you have $1,000 of cash that can’t be spent on coaches, that can’t be spent on marketing, that can be spent on rent, that can be spent on any other thing that will help improve the business. It’s just sitting in an account earning next to nothing. You have 10 months where you’ve been putting this money away earning you no additional return. Then you buy the equipment and you start to put it in service and let’s say that you’re able to then generate $1,200 a month going forward, so now you start to get a very small relative to $10,000 cost return on that investment, which has already happened 10 months in the future. Compare that to at day one you finance the cost. You have a small up-front investment. You finance the bulk of that $10,000 purchase. You then have, let’s say 10 one thousand dollar payments to pay it off. You’re still earning that $1,200 a month, except you’re doing it right away in month one instead of in month 11. Now, that same thousand or 1,200, $1,000, you would have been just putting into a bank, you’re paying towards the equipment and earning $200 on top of that at day one.

Clay: 27:42 – So now by month 10, not only have you paid off the cost of the equipment you’ve generated, what an additional $2,000 in profit and now from month 11 on, that $1,200 a month is going right the bottom line. That kind of changes things where you can from the very beginning start to make a 20% return on that actual cost of the equipment. And by the way, that, you know, $1,000 is not, you know, entirely interest, there’s some return of principal or paid out on the balance on the, you know, the equipment asset. But you’re able to use a much more efficient way to generate a return on that same $10,000 investment, even if it costs you more from a borrowing perspective in order to do so, you’re able to make so much additional ROI so much sooner that then when you repeat that 10 months from now, that’s where you start to really get the benefit of compound interest, and that’s compounding the return on capital, which over the course of a longer horizon, when you start to pull back and look at the next five, 10, 15, 20 years of your business, that ability to earn return on excess capital and then earn a further return on that return is where you really start to think about exponential growth in your business or in your financial assets. And that can be for you personally, you know, as the owner of the business, that could be for the business itself. You’re in the driver’s seat in terms of how you utilize that extra money.

Greg: 29:21 – So, I mean like with me having that InBody and having a loan through it, once I get that paid off, I still not only am generating revenue like you talked about earlier with your example of the $1,200 and a thousand of it going towards a payment and still coming up with $200 in profit, but after you get done paying off that loan, now I have that InBody as an asset. I can still, I mean, I could sell it if I wanted to. Now I’m not going to probably make the same amount that I did when I bought it originally, but if I take into account that profit plus however many years I have where I’m making $1,200 a month off of it, compared to just the $200, it definitely extremely paid for itself. And then plus many, many more. So it sounds like if you took that into a bigger scope, you’re saying, I mean, this could be even, a purchase of a building if you’re owning a business that you’re putting this business in, and with ownership of that building, once that gets paid off, it would be kind of used in that same example if we kind of grew it out to a mortgage payment and the ownership of a business building.

Clay: 30:28 – Exactly. And you know, that can be the difference of having spent that money up front to get the initial equipment or initially outfit your facility versus saving that money, leveraging the capital more efficiently, where instead of, you know, being 20 years down the road before you’ve accumulated the cash flow to buy the business, maybe you are able to do it in five to 10, you know, based on a more efficient use of that same exact original investment.

Greg: 30:54 – Yeah, that makes perfect sense. Now, bad debt. I mean, I think most people can understand definitely credit cards. But what are other forms of bad debt that you would steer entrepreneurs and business owners away from so that they can make sure that hey, these are the things, I heard Clay on a podcast talking about them. I need to make sure that if I’m just starting out or even if I’m in business, how I can correct some of the actions that I’m currently taking and maybe even the behavioral changes. Because I know with me when I had a credit card for the business, it was just like my personal credit card. I can use it for whatever, and not being really mindful of it, but what are the debts, the bad debts that you feel like people should be steering clear of?

Clay: 31:37 – Number one, first and foremost, is what’s referred to as a merchant cash advance. So, you know, the company that actually processes all of your membership billing on a monthly basis, a lot of those companies offer a separate, you know, loan product where they will lend you based on your track record of generating X thousand dollars per month, some amount, and then they will then repay themselves by taking a small amount every single day out of the payments that come into the business And then they send you the remainder thereafter. What happens is a lot of times people tend to rely on these at the most difficult point from a cash flow perspective in their business. So they’re behind on some obligations, you know, rent or utilities and they need access to quick cash. And this solves that problem, but it ends up just becoming a BandAid, because without that money being invested into something that’s gonna generate additional revenue, now they just have an additional payment that’s coming out of their account and ultimately ends up strangling a lot of businesses or accelerating the downfall of a lot of businesses. So, these short-term merchant cash advances are like the number one thing that I would encourage people to stay away from, which is like another reason why it’s always best to try and secure debt when things aren’t going well, the business looks better, you may secure some sort of form of debt, you know, and you don’t necessarily need it but allows you to A, keep your own cash in the bank and then gives you this additional, you know, reserve versus trying to then find debt at a point when you know, the businesses not in a good position necessarily and needs it most. And that’s what tends to be most costly, as well as, you know, the most difficult to obtain. The other thing, that you know, I’ve seen more recently with a lot of the online based lenders is you know, these kind of short-term working capital loans. And some of them function similar to the way merchant cash advances in terms of like daily paybacks. But what here’ll be a lot of times is like access of you know, a relatively large amount of money that has to be paid back in like six months’ time. And first kind of comment on these is when you look at the interest or how it’s calculated, you know, a lot of times what’s not clear is that, you know, at a shorter payback time, the effective annual rate is much higher than, you know, just the amount that you’re paying on a monthly basis relative to what you borrowed, so the annual percentage yield or the effective annual rate could be in the 20s, 30s, 40s, 50s. I’ve literally, no joke, seen something as high as 98%. And it’s just because, you know, a lot of times it’s not that clear and you have to really have a good understanding of what you’re signing up for, which most people don’t. And that’s, you know, not just gym owners or small business owners. That’s like the vast majority of America or the world. Financial literacy is just not something that’s, you know, strongly promoted in schools. So you’ve got to kind of learn it on your own.

Clay: 34:46 – So you know, a lot of times with these kinds of hidden rates or hidden fees that are buried in, but what happens with these kind of short-term working capital lines is you’re making, the interest payments or some diminimous payments and then the entire balance comes due at the end of that six-month period. And that’s a lot of times where people haven’t generated not only enough excess cash flow, but have not generated enough excess cash flow to cover the interest, but also the entire return of the payment and then at month seven, they find themselves in a really bad position because they have a large balance that needs to be repaid, which is why I’ll, you know, almost always encourage people to take, you know, term debt, and I think you mentioned at the beginning, a couple-year, you know, term loan where you pay down the balance over time, seems in the grand scheme of things relatively short, but actuality for business lending, it’s a pretty long period of time to get, you know, three or five years. You know, term debt is not necessarily an easy thing in the broader context of you know, lending or small business lending particularly.

Clay: 35:55 – So, whereas we have the merchant cash advance or these short-term working capital lines, the alternative is you know, a term obligation where you have fixed payments over a fixed period of time and once you come to the end of it, nothing else is owed. And so I think that’s one of the things that’s most important for people to understand is do my payments change at all over the course of time? You know, is there any obligation at the end? And that’s one of the big reasons why we’ve structured, you know, our two key financial products at Rigquipment Finance as term-debt obligations. On one hand we do the finance of equipment purchases. We use what’s called a full payout direct finance lease. It’s kind of a long-winded way of saying, you know, rent to own, but the gym owner knows day one, exactly what the stream of payments is going to look like. Once they make that final payment, they own the equipment outright thereafter. They don’t have that large upfront cash investment. They have a manageable stream of payments over the life of the lease, and then they own it afterwards. The other that we have as a more traditional term loan and that’s going to function for all intents and purposes the same way. It’s a fixed number of payments. It fully amortizes the original amount that’s borrowed so that once the obligation is over, there’s, you know, no balloon payment or no additional amount, anything that was financed with that term loan is then owned outright. And with both of these, the additional benefit for the gym owner is that, you know, they get to recognize an ownership position for tax and accounting purposes. So you’re going to get to write off that depreciation of the asset that was purchased, you get to write off the applied interest component of it. So it really goes a long way into actually lowering your effective cost to borrow.

Greg: 37:40 – That definitely makes sense. And I’ve utilized you guys before, and I hope more people out there, if they are listening to this, definitely reach out and have the ability to utilize. Now I have a unique ability that I get to work with the Free Help call. And I know one of the options that when a gym owner gets on the phone, or a business owner and we’re talking about their business and we’re talking about the Incubator and how it could possibly help where they’re trying to go and their Perfect Day and getting ’em there and showing them the path. Sometimes they don’t have the money upfront to be able to pay for the Incubation outright. And I know that we’ve talked about it in the past with utilizing Rigquip for certain things. But we’ve actually been able to really work with you guys and you guys actually allow us another option now. So if people are wanting to—if they don’t have the upfront capital and they want to finance, you’re giving them that ability. Can you kinda go into a little bit of detail of what that structure kind of looks like for gym owners if they are not knowing that hey, this is an option if they are going into the Incubation process or wanting to within Two-Brain?

Clay: 39:00 – Absolutely, Greg. And I’ll, to a certain extent, you know, kind of put my foot in my mouth relative to one of the things I said earlier, which is, you know, in our business, we typically only finance hard assets. Things that go into capital investments that go into the actual infrastructure of the business. This is the one example in our entire history where we’ll finance something that is not hard asset based. And the reason for that is, you know, we’ve work with Two-Brain for many years and we fully we believe that the Incubator program, you know, is going to ultimately result in improvements to the business and helping make the gym, you know, more profitable. So we do view it as an expense that is in the best long-term interest of the business. And so even though there’s not necessarily a specific piece of equipment that’s getting purchased in exchange for this, it’s a tool and in the same ways of helping gyms, you know, ultimately become more profitable. Something we kind of kicked around with the Z team at Two-Brain for a couple of years but ultimately what we have is, you know, a six or 12-month payment plan, you know, well-qualified applicants which is kind of a general catch-all term. But you know, meeting certain requirements, it can be 0% financed. For anyone that qualifies, it can be 0% for the first six months. I have a slightly different criteria to get to the 12 months. But you know, again, we view it as a way to help offset that initial investment, which in the grand scheme of things is, you know, is pretty small in terms of what it can generate for your business in the future.

Clay: 40:47 – But again, getting back to that return on investment, you know, Two-Brain, you guys already offer a guaranteed ROI. If you have a guaranteed ROI on a $5,000 up-front investment, think of what kind of guaranteed ROI you can really generate, you know, with a payment of, you know, 400 bucks a month, 415 to 430 at 12 months or 830 on the course of six months. So then, that return on that initial investment, you know, gets really significant in terms of, from a financial perspective, you know, let alone helping, you know, potentially save or really grow your business and all the, you know, subsequent benefits that come to you as an owner of doing that.

Greg: 41:34 – And that kind of what you were talking about earlier, too, of good debt. I mean, you’re generating value. We know—me and you know what the Incubator can definitely do. People that have never gone through it may not understand what it is of having a mentor be able to work with you one on one so that we can build the systems and get you closer to Perfect Day and understand the metrics that you’re supposed to be tracking. I mean, just overall everything, so that you’re a better business owner and the business is running a little bit smoother than you could ever expect. But it’s generating value. I mean, you could put new systems into play that is going to generate more value. It’s going to provide you with the numbers to look at so you know what to track and how to track it and how to make it better if it’s not going in the direction. So, overall it’s a loan process that’s going to bring more value to your members, to your coaches, to you, and it’s definitely something that people can utilize now, which was not really an option in the past, which is phenomenal for—I know if I was a new business owner that was starting out a gym, this was never an option when I started with Two-Brain. So it’s really nice to be able to have a partnership with you guys to be able to offer this to those gym owners.

Clay: 42:50 – Yeah. I think you know, you really hit the nail on the head, Greg, is, you don’t know what you don’t know. And a lot of times people either don’t realize that quick enough or realize it when it’s already too late. And so, you know, we wholeheartedly believe in the Two-Brain family and the benefits that gym owners get as a result of going through the Incubator and that ongoing one-on-one mentoring because at the end of the day, you know, and you talked a little about numbers and tracking I mean, there’s no value in a number. The value as the owner of a business is in knowing what to do about it. And being able to work with someone that’s seen these experiences, that has either lived it themselves as a gym owner or is currently working with a lot of other clients that are going through the same issues. Because you know, they vary in degree now in terms of—no issue that you run into as a gym owner, you’re the first one to ever run into. If you have the ability to leverage someone else who’s gone through it, how they responded to it and what was most efficient is hugely valuable. Because as an owner or operator of a business it’s on you to make the decisions about what sort of activities, what sort of products or services that your business offers and those activities and products and services results in financial output. They result in numbers which you then have to turn around and not only understand, but then be able to reapply those into making better decisions about different activities or more or less activities, which then results in a different financial output, which you then need to understand and analyze and continually improve and evolve your business method, the key, to long-term success, long-term growth, long-term sustainability in your business, we’re still ultimately going to, you know, serve you as the owner and your family well and allow you to continue to serve and help hundreds of thousands of people in your community on their path towards health and wellness, which is the exact reason that we’re all in this business.

Greg: 45:11 – Agreed and I definitely could not say it better myself. So Clay, thank you so much for being able to jump on Two-Brain Radio and sharing your expertise and kind of talking about the differences between good debt and bad debt so people could really understand, and hopefully this has brought value to them and educate them. And if they decide, hey, you know what, I want to reach out to Riqquip, whether it’s for a loan or even more information from them, what’s the best way for them to contact you?

Clay: 45:37 – Absolutely. Show ’em you always access us through our website,, that’s R I, G, Q, U, I P M W N You’ll find a bunch of helpful information right there on the homepage, including a payment calculator and calculator where you can start to explore at various amounts, finance over various term lengths. What does that mean for you or mean for the average company that’s approved for financing in terms of monthly payments. So it’s a good kind of quick litmus test, you know, in terms of, OK, I want to purchase an InBody or I want to purchase you know, 10 new rowers or Airbikes, you know, what does that really gonna require on a monthly payment basis? You can use that quote calculator right on our home page. And from there you can always connect with us via email You can apply directly through our website or you can find us on any one of our, you know, partner pages. Two-Brain is a great example, but all the big equipment vendors, Rogue Fitness, you’ll find us on their websites as well. Because you know, we’ve come from within this community and we work, you know, exclusively with boutique fitness businesses so typically anywhere you run into someone that can help you grow your business, you’re gonna find us. Website, email and phones are always available, 571-933-8339 and we look forward to hearing from you, learning about your business and learning about how we can help you, you know, grow and expand your community,

Greg: 47:14 – Thank you for listening to Two-Brain Radio. Make sure to subscribe to receive the most up-to-date episodes wherever you get your podcasts from. To find out how we can help create your Perfect Day, book a free call with a mentor at

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