Model Study: SBA 7(a) Financing of a Club Pilates Reformer Studio, Prospect Village Suite 17, Prospect, Kentucky

A new Club Pilates studio in Suite 17 of Prospect Village (Prospect, Kentucky), financed with a $523,000 SBA 7(a) loan, is feasible as resized: a 20 percent equity injection, a $60,000 working capital reserve, and an $880,000 stabilized revenue underwrite. Stabilized DSCR is 2.79x; Year 1 DSCR is 0.89x, with the gap funded by the reserve. The proposed structure, 10 percent equity, no reserve and an underwrite at the $987,800 FDD system average, is not feasible: twelve reformers in 1,460 SF would run at about 94 percent utilization at the FDD average, and on MMCG base revenue the proposed loan starts at 0.87x with no liquidity behind it. The binding risks are the franchisor and the capture rate, not leverage: Xponential's Q2 2026 results show Club Pilates same-store sales down 5 percent, cash of $25.0 million against $522.4 million of long-term debt, and a Jefferies-led sale review; and the 3-mile ring cannot fill the studio alone, so the plan depends on a 5-mile draw.

Model study prepared by MMCG Invest | Michal Mohelsky, J.D., FMVA | October 5, 2026

As proposed (MMCG's reconstruction of a typical franchisee submission): a $534,600 SBA 7(a) loan at 90 percent loan-to-cost, a $59,453 injection, no reserve beyond the FDD Item 7 additional-funds line, and revenue underwritten to the $987,800 FDD average by months 18 to 24. MMCG does not support it. That revenue requires about 378 members and 94 percent reformer utilization in 1,460 SF. On MMCG base revenue, Year 1 DSCR is 0.87x with no dedicated liquidity behind it, and Club Pilates' 5 percent same-store decline in Q2 2026 argues against underwriting to a system average set in a stronger year.

As resized: a $523,000 SBA 7(a) loan at 80.0 percent loan-to-cost, a $130,792 injection, a $60,000 working capital reserve, and an $880,000 stabilized underwrite. MMCG supports it. Year 1 DSCR is 0.89x and the reserve funds the $9,230 shortfall; Year 2 is 2.12x and Year 3 is 2.79x. Coverage holds at 1.27x under a combined downside (revenue $760,000, instructor cost up 15 percent, rate up 100 bp). It fails only at the Xponential multi-brand run-rate AUV (0.82x) and at 40 percent attrition (0.00x).

Conditions precedent.

This is a model study. It tests feasibility for a hypothetical, unnamed franchisee and borrower in a real, publicly listed space, using public data only. No private client data and no analog from any other engagement is used. Real companies appear only as franchisor and parent, as named competitors with prices from their own websites, or as cited comparables. Every figure carries a documentary source or is labeled an MMCG assumption, and unverified items are listed in Conditions and Limitations.

Stated rules applied: the $350,000 Small Loan threshold (SOP 50 10 8); the 10 percent minimum startup injection; reinstatement of the Franchise Directory on 1 June 2025; SOP 50 10 8.1 for loans numbered on or after 1 October 2026; the 8 percent royalty and 2 percent brand fund; the local advertising floor; the asking rent. Judgement calls, labeled "MMCG assumption" throughout: underwritten revenue, pricing tiers, payroll, NNN, TI, reserve sizing and stress magnitudes. Web sources were accessed 5 October 2026. The underwriting framework is described on our pilates and yoga studio feasibility page.

The method is set out in full in MMCG's feasibility study methodology.

Six candidate inline spaces were screened against the brief: 1,500 to 2,200 SF, a grocery or daily-needs anchor, a 3-mile median household income above $100,000, and no existing Club Pilates inside the brand's protected territory radius.

Suite 17 is 40 SF (2.7 percent) below the screen floor, and the territory check was performed only for the selected subject; both are carried as conditions.

The borrower, a hypothetical single-purpose LLC, will develop and operate one franchised Club Pilates studio in Suite 17 of Prospect Village, a 1,460 SF in-line, fully built-out space in a Kroger-anchored community center at the signalized US-42 entrance in Prospect, Kentucky. The studio delivers the brand's reformer-based group programming, eight class types across four levels, on 12 reformers (MMCG assumption, subject to franchisor layout approval). Revenue comes from monthly memberships, intro offers and class packs, private sessions and branded retail. The owner is semi-absentee, with a salaried general manager, front-desk sales associates and per-class instructors certified through the brand's 450-plus-hour teacher training. A presale period of about 90 days targets 150 founding members (MMCG assumption). The studio reaches 290 members by month 12 and stabilizes at 337 average members by month 24, producing $880,000 of Year 3 revenue at a $185 blended monthly revenue per member (MMCG assumption). The franchisee pays the 8 percent royalty, the 2 percent brand fund, a technology fee, and the greater of $1,500 per month or 2 percent of prior-month gross sales in local marketing. Total project cost of $653,792 is funded by the $523,000 SBA 7(a) loan and a $130,792 cash injection.

Marketing and Sales Strategy. Acquisition follows the franchisor's presale model: Item 7 budgets $33,300 to $46,600 for initial marketing and $16,400 to $17,900 for the presale and soft-opening retail kit; the study carries $40,000 and $17,000. Founding-member rates target in-center Kroger traffic and the 1- and 3-mile rings, whose median household incomes are $115,036 and $104,763. After opening, the free intro class is the conversion tool; Club Pilates Springhurst currently advertises a free first class and zero-enrollment offers, which shows how the brand promotes in this market. The $18,000 annual local marketing floor funds paid social and search. Corporate wellness channels are treated as utilization fill, not core revenue. The sales team is measured on lead-to-membership conversion, the metric Xponential's Q2 2026 call named as a field-support priority after top-of-funnel pressure.

Amenities.

Prospect Village was built in 2000 on 16.37 acres, with 21 stores, 1,260 parking spaces, 1,178 feet of frontage on Timber Ridge Drive and 305 feet on US-42, and signalized access with a dedicated turn lane (LoopNet 16685617). GLA is reported as 160,928 SF by LoopNet and 153,486 SF by the leasing flyer; MMCG relies on neither. The anchor is a Kroger Marketplace of nearly 100,000 SF. LoopNet lists three suites at $20.00/SF/YR NNN; Suite 17 is the largest in-line suite available. Kroger-controlled outparcels at 5929 Timber Ridge Drive are offered for ground lease or build-to-suit and are potential competitive pads.

Traffic. The KYTC Prospect US 42 Transportation Planning Study (Item No. 5-214, 25 July 2022) finds the corridor carries up to 33,600 vehicles per day on 2021 counts, flags the Timber Ridge Drive intersection as a crash location, and makes an $8.23 million roundabout there its first-priority recommendation. MMCG concludes frontage AADT of 29,000 to 33,600 (2021 base); construction of that roundabout during the lease term would disrupt access.

The center's pad listing identifies C-1 Commercial District zoning. Snap Fitness already operates in the center, so the landlord has leased to a fitness use under the existing zoning; that is an observation, not a legal determination. Whether group fitness is permitted by right or needs a conditional use permit in C-1, and whether the City of Prospect or Louisville Metro administers the zoning, were not verified. A zoning verification letter is a condition.

Utilities are assumed separately metered and modeled at $14,400 a year (MMCG assumption). Kentucky assesses tangible personal property as of 1 January on the owner's self-report to the county Property Valuation Administrator; the reformers, FF&E, technology and inventory (about $179,000 at cost) are taxable to the borrower, modeled at $2,000 a year (MMCG assumption) subject to confirmation with the Jefferson County PVA.

The leasing flyer (vintage not stated) reports population of 3,185, 20,504 and 82,917 at 1, 3 and 5 miles, with median household income of $115,036, $104,763 and $77,169. The 1- and 3-mile rings clear the $100,000 screen; the 5-mile ring does not. ACS 5-year counts were not retrieved; MMCG estimates women aged 25 to 54 at 19.5 percent of population (MMCG assumption), about 4,000 within 3 miles and 16,170 within 5 miles.

SFIA's 2026 Single Sport Report puts US Pilates participation at 13.8 million in 2025, up 6.8 percent in a year and about 39 percent since 2020, against total US activity growth of 1.2 percent. Core participants number 3.38 million, 85.7 percent of them women; ages 25 to 54 account for 54.4 percent of core participants, and 39 percent of all participants live in households earning $100,000 or more. The category is growing at roughly six times the base activity rate, and its committed users skew affluent, which suits a membership model in a $100,000-plus trade area.

Capture-rate method.

The 3-mile ring alone is not a credible underwrite: three Pilates operators within about 2 miles already serve its estimated 312 participants. On a 5-mile draw, capture of 1.1 to 1.3 percent is achievable, but that ring includes Club Pilates Springhurst and carries a $77,169 median income. MMCG concludes the studio is a 5-mile-draw business with a 3-mile income core, which is the main reason the underwrite sits below the FDD average.

Distances are MMCG straight-line estimates. Prices are from operator websites accessed 5 October 2026 unless flagged as carried.

Competitor Number 1: PilatesFirst. A classical Pilates studio at 5956 Timber Ridge Drive, Suite 101, about 100 yards from the subject, offering apparatus Pilates, TRX and spin. Group tower classes are capped at 6; reformer count and prices are not published on the operator's site. A $132.50 registration figure from a social post is of unclear scope and is not relied on.

Competitor Number 2: Core Pilates and Yoga. At 9506 Norton Commons Blvd, about 2 miles away, operating since about 2005; reformer, mat and private Pilates, yoga, barre and workshops, booked through Mindbody. Published prices: an introductory private at $50 and three privates at $189; group packs and unlimited memberships are not published. A $35 drop-in from an aggregator page is carried, not primary-verified.

Competitor Number 3: Studio Pilates Norton Commons. At 10709 Meeting Street, Suite 101, about 2 miles away; opened 2020 as the first US Studio Pilates franchise, running 40-minute reformer classes seven days a week. Operator prices: Starter Pack $60 for 6 classes in 2 weeks; casual class $30; 10-pack $24 per class; 25-pack $22; 50-pack $20. No unlimited membership is published. An 8-class month costs $160 to $192, which brackets MMCG's $185 blended assumption.

Competitor Number 4: Snap Fitness 24/7 (Prospect Village). An in-center 24-hour gym co-tenant, competing for the same fitness spending. No prices verified on the operator site.

Competitor Number 5: Burn Boot Camp Prospect. A functional-training studio identified through an aggregator; address, opening date and prices not verified. No reformer product.

Competitor Number 6: Unnamed CrossFit affiliate. Named without detail in the center's nearby-retailer list. No prices verified.

Competitor Number 7 (edge of trade area): Club Pilates Springhurst. At 9424 Brownsboro Road, Louisville, about 3.5 miles away: outside the 3-mile ring but inside the 5-mile draw. Business start recorded 30 September 2022. The location page advertises a free first class and enrollment waivers but publishes no membership prices. On the brand's historic territory standard (up to 50,000 people within about a 2-mile radius), the subject likely lies outside Springhurst's Designated Territory, but the 2026 Item 12 text and territory map were not reviewed.

Supply conclusion. Three Pilates operators sit within 2 miles and none publishes an unlimited membership, so the subject would be the only unlimited-membership reformer product in the ring, a real point of differentiation. Price pressure will come from Studio Pilates' $20 to $24 per class. No announced Pilates, barre or yoga opening within 3 miles was found; the Kroger outparcels are an unentitled pipeline risk, and at brand level Xponential expects about 150 net new studios in 2026, with management citing fill-in openings as a cause of the Q2 same-store decline.

Structure. The franchisor is Club Pilates Franchise SPV, LLC, under XPOF Assetco, LLC and Xponential Fitness, Inc. (NYSE: XPOF). Royalties flow into a special-purpose entity inside Xponential's debt structure, so franchisee support depends on the parent's liquidity.

Performance. FY2025: revenue $314.9 million; North America system-wide sales $1.75 billion; same-store sales up 0.5 percent for the year and down 4 percent in Q4; 341 gross openings against 140 closures; a $17 million FTC settlement pending approval; CycleBar and Rumble divested. Q2 2026 (released 6 August 2026): revenue $66.0 million, down 13 percent; North America same-store sales down 6.8 percent, Club Pilates down 5 percent; run-rate AUV $659,000, down from $686,000; net loss $4.8 million. Liquidity at 30 June 2026: $25.0 million of cash and restricted cash against $522.4 million of long-term debt, with $25.7 million of operating cash used in the quarter. Revised 2026 guidance: revenue of $250 to $260 million and adjusted EBITDA of $91 to $97 million.

Sale process. Voss Capital (19.3 percent) urged a sale on 4 March 2026; Xponential retained Jefferies on 6 April 2026 to evaluate a sale, merger or other transaction, and three directors resigned. The review was still open at the Q2 call. Going-concern language in the FY2025 10-K and Q2 10-Q was not reviewed; the disclosed liquidity alone justifies a lender review before commitment.

MMCG judgement. Club Pilates is the asset any buyer would preserve: 1,505 open studios, 2,062 licenses sold and a $987,800 FY2025 system average. A sale is more likely to move the brand to a better-capitalized owner than to impair it. The franchisee-level risks are fee or support changes under a new owner, fill-in development pressure on same-store sales, and slower field support during a transition. The sensitivity battery models brand fund at 3 percent, local marketing at 3 percent, technology fee up 50 percent and revenue down 5 percent as the distress case.

Club Pilates publishes no Louisville membership prices, so the tiers below are MMCG assumptions, cross-checked against Studio Pilates' published $20 to $24 per class.

Capacity and utilization. Twelve reformers and 52 classes a week give 624 spots weekly. At stabilization, 337 members at 1.4 visits a week plus about 50 non-member visits produce 522 visits, or 84 percent utilization. The proposed case needs 378 members, or 94 percent, effectively full at every time slot; Voss attributed part of Club Pilates' Q4 2025 same-store decline to capacity constraints at mature studios. A 1,460 SF suite has no room for more reformers, so the suite itself caps revenue below the FDD average.

Ramp benchmark. Disclosed new-studio data (114 studios, 2024 FDD, via aggregator tabulation) show monthly revenue of $22,540 in month 1, $60,318 in month 3, $65,667 in month 6 and $67,419 in month 12, about $727,000 over the first year; a 2025 FDD tabulation shows a later month-12 value of $82,290. The MMCG base runs Year 1 at 85 percent of the 2024 curve ($620,000) and stabilizes by month 24.

Instructor model. Instructors are paid $48 per class (MMCG assumption) plus 10 percent for payroll taxes and workers' compensation, across 2,704 classes a year at stabilization. The pipeline is the brand's teacher training; the franchisor reports more than 4,500 instructors nationwide, and the Item 7 instructor training fee is $200 to $1,600. The plan recruits a first cohort of 8 to 10 instructors during presale.

Location: Prospect Village, Suite 17, 5905-6055 Timber Ridge Dr, Prospect, KY 40059 Use: Franchised reformer Pilates studio (Club Pilates) Size in SF (Gross): 1,460

Source: Marshall & Swift CoreLogic, MMCG

Reserve sizing. In the base case, the cumulative cash trough after debt service is about $43,500, reached at month 3. The six-month-slower ramp produces a $123,750 Year 1 shortfall. The $44,000 additional-funds line plus the $60,000 reserve give $104,000 of liquidity, covering the base trough with a $60,500 cushion; the $50,000 post-closing liquidity condition closes the slow-ramp gap.

Rate note: the model carries a 6.75 percent prime assumption; the published prime moved to 7.00 percent effective 17 September 2026, and the note rate sets at closing. At prime plus 3.00 percent on the current prime the rate would be 10.00 percent, which the +100 bp sensitivity below more than brackets.

Sources and uses (as resized): SBA 7(a) loan $523,000 (80.0 percent) plus borrower cash injection $130,792 (20.0 percent), against hard cost of $363,800, soft cost of $270,724 (including the $60,000 reserve) and financial cost of $19,268.

The injection is the hypothetical borrower's personal cash, verified by bank statements (MMCG assumption), exceeding the 10 percent minimum ($65,379) by $65,413. With the $50,000 post-closing liquidity condition, the borrower shows at least $230,792 of liquid assets, above the franchisor's $100,000 requirement. Both the resized and proposed loans exceed the $350,000 Small Loan threshold, so both are Standard 7(a) loans with full credit analysis, Standard collateral requirements and the lowest-tier maximum spread. Getting under $350,000 would need about $173,000 more equity and would not improve coverage. An equipment-finance alternative (reformers and FF&E on a 60-month lease at 11 percent) raises combined debt service 19 percent and cuts Year 1 coverage to 0.75x; MMCG does not recommend it unless a vendor defers payments through the ramp.

Stabilized year (Year 3), revenue $880,000.

Margin reconciliation. The Item 19 data reviewed disclose revenue and membership metrics, not expenses, so there is no FDD margin to reconcile to. A third-party estimate implies earnings of 15.0 to 18.0 percent on near-median revenue. MMCG's 27.1 percent EBITDA margin is higher for three identified reasons: occupancy at 4.3 percent of revenue on a $20.00/SF, 1,460 SF suite (a typical 1,800 SF studio at $30 to $40/SF plus NNN runs 7 to 9 percent); no owner draw; and the figure is before debt service and the capital reserve. Adjusted for market-rate occupancy and a $70,000 owner draw, the margin falls to about 15 percent, in line with the third-party range; even at 15 percent on $880,000, CFADS of about $122,000 still gives 1.49x. If the owner replaces the GM, the $70,000 GM line becomes an owner draw and EBITDA is unchanged; MMCG credits no owner labor above market GM pay.

MMCG base case, as resized.

After Year 3, revenue grows 2 percent a year through pricing, with members held at 337 by capacity; payroll escalates 3 percent from Year 4 (MMCG assumptions). The capital reserve anticipates the brand remodel program cited on the Q2 2026 call. For comparison, the proposed case on the sponsor's own ramp (at the FDD average) shows 1.92x in Year 1 and 3.76x in Year 3; on MMCG base revenue the proposed loan runs 0.87x and 2.73x with no reserve behind the Year 1 gap. Once stabilized, the studio covers by a wide margin: the credit question sits in months 1 to 12 and in whether stabilized revenue holds above about $726,000, which is exactly what the reserve and the larger injection target.

Year 3 fixed costs are $481,231, including the $18,000 marketing floor and excluding the $10,000 capital reserve. Variable costs are 18.2 percent of revenue (royalty 8.0, brand fund 2.0, merchant fees 3.0, retail COGS 2.2, contingency 3.0), leaving an 81.8 percent contribution margin. Members are 85 percent of revenue divided by $2,220 per member per year.

Interpretation. The 1.00x break-even of $700,857 sits above the FY2025 bottom-quartile average of $685,500, so a bottom-quartile studio does not service this debt. A studio at the third-quartile floor ($814,100) covers at about 2.0x. The underwrite therefore needs the site to perform in the top three-quarters of the system. The high-income core and the absence of an unlimited-membership reformer competitor within 2 miles support that; the capture analysis and the parent's same-store trend argue against comfort.

All cases use the resized structure ($523,000 at 9.75 percent) and show Year 3 unless stated.

Interpretation. The slow ramp is a liquidity case, not a solvency case: it needs $123,750 of Year 1 funding against $104,000 of project liquidity, and the $50,000 sponsor condition is sized to the gap. The $683,000 run-rate AUV is a multi-brand average, not a Club Pilates figure, but it is the right stress for a franchisor whose Q2 run-rate fell to $659,000; at that level the loan does not cover, though MMCG does not view it as the expected case in a $100,000-plus income core. Attrition is the most dangerous variable: coverage falls from 1.54x to zero between 30 and 40 percent, so MMCG recommends a covenant requiring monthly reporting of members and cancellations. A new competitor within 1 mile is survivable at 1.47x, with the Kroger outparcels the likeliest site. Franchisor distress holds 2.06x: at this occupancy cost, fee changes are a margin issue, not a default issue. The combined downside holds 1.27x, which supports the resized determination.