A Health Club Bond is surety bond that protects customers who prepay membership dues to a fitness facility such as gyms, yoga studios, and other fitness and health related classes from the failure of the fitness club to reimburse the customer from unearned membership dues and from the bankruptcy of the health club. These bonds may also be called Health Spa Bonds, Gym Bonds, or Fitness Bonds.
As a requirement of membership, many health clubs require their members to prepay for their membership. For example, a member may be required to pay for six months or 12 months in advance. A Health Club Bond protects those members in the event that the Health Club goes bankrupt or does not refund any unused portion of their membership dues.
The health club bond is a three-party agreement. The health club is referred to as the principal on the bond. The principal contracts with a third-party called a surety bond company, or Surety. In exchange for payment and providing indemnity, the surety provides a bond to another party called the Obligee. The obligee on a health club bond is usually the state in which the club exists, but it may also be the health club franchisor. The obligee is the beneficiary of the bond on behalf of the health club members.
The health club bond guarantees the payment of unearned membership dues if the health club closes, files bankruptcy, or otherwise does not return unearned dues back to members. Should a member not get reimbursed, they can file a claim against the health club bond. The surety will investigate the claim and pay valid claims promptly. The bond benefits health club members because they can quickly collect from the surety bond company instead of trying to get reimbursed from the health club through bankruptcy court or civil proceedings.
Should the surety pay a valid claim, they can seek to be reimbursed from the principal and any indemnitors under the indemnity agreement. Health club owners should understand that surety bonds are not insurance, even though they are often written by insurance companies and brokers.
Health Club members should also be aware that a health club bond may not be enough to protect them fully. Limits on these bonds may be set too low to cover all of a club’s unearned membership dues.
Health Club Bonds are very easy to obtain. These bonds can be purchased online instantly. Larger health club bonds may require a personal credit check of the owners while smaller amounts may be issued without a credit check of any kind.
Health club and spa owners with many locations may choose to purchase a blanket bond. While these bonds may be cheaper to obtain, they may also require additional information such as company financial statements.
Health club bonds generally cost 1% of the bond amount or less. For example, a $50,000 health club bond would cost $500 a year for most owners. Many surety bond companies will provide discounts for health clubs willing to purchase multiple years in advance. Additionally, these bonds often cost less for clubs with many locations or with very strong financial strength.
The amount of a health club bond is dependent on the amount required by the obligee. Different states and franchisors have different requirements. For example, Alabama requires a $50,000 health club bond. However, the Anytime Fitness Franchise requires franchisees to have a health club bond in the amount of $25,000. Check the requirement with the party requiring a bond.
Some states or franchisors may allow a health club to post cash or a letter of credit instead of a surety bond. In most cases, a bond is a better choice for most health clubs. Cash can be held for long periods of time is usually better used to fund operations or growth. Letters of credit, tied up borrowing ability and are normally paid on demand with little defense.
Owning a health club can be a rewarding experience, but owners are often required to obtain health club bonds to operate. Fortunately, these bonds are inexpensive and easy to obtain. Health club owners may also need other surety bond solutions such as Sales Tax Bonds. Contact the health club bond experts at Axcess Surety today for all your bond needs. Health clubs can also visit our Complete Guide to learn more about surety bonds, including many frequently asked questions.
Axcess Surety is the premier provider of surety bonds nationally. We work individuals and businesses across the country to provide the best surety bond programs at the best price.
