Lots of states require a surety bond and almost nobody knows what it is.
So, what is it?
Some Quick Background
Surety Bonds are monetary payments made to, and held by, your state because you own a gym. To better understand what and why these exist, let’s start with an example. Assume for a moment that you open a gym. You build this gym through membership sales. Then, one day, you decide to close your doors, take your money, and run. Your members are left with no money and no gym. This kind of thing happens all of the time and state governments know it. That is why a lot of states require gym owners to post a surety bond.
But, What is It?
We usually see surety bonds in states that have laws directed toward gyms. Most of these laws either prohibit or restrict pre-selling gym memberships. The concept of pre-selling is easy when we think about selling paid in full (PIF) contracts for 3, 6, or 12 months. You can better understand why we don’t like PIF contracts HERE. However, pre-selling also applies on a monthly level. If I charge you on December 1 so you can come to the gym through December, then I am pre-selling by most state law definitions. Worse yet if I am requiring you to automatically pay me each month. That’s call an installment contract.
If your state has a gym statute, and has law prohibiting or limiting pre-sales, then your state most likely requires you to post a bond if you are going to pre-sell. The process for each state varier. However, it usually requires the gym owner to fill out an application, pay a processing fee, and submit the gym’s membership contract. Upon the state approving the application, the state will send a surety bond amount. The body amount varies greatly, but could be anywhere between $10,000 and $50,000 based on gross membership sales. If the gym owner wants to be compliant with the law, the gym owner then must pay and maintain that bond.
The Big Problem
Here’s the big problem, almost no one knows about these bond requirements. States don’t hand you a checklist when you open your gym of things you need to do. Most local attorneys don’t know the gym industry enough to look for specific gym laws. If the gym is caught operating without a bond, the penalty could be shutting down the gym.
If you want to know if your state has a bond requirement and what to do about it, reach out. We are here to help eliminate legal exposure. The more gym owners we talk to, the more we understand how big this exposure is!
