Owning and operating a restaurant can be a very lucrative venture, but it is also costly. Not every owner has the means to purchase new equipment when necessary, and every restaurant owner knows that functioning equipment is essential to the establishment’s success. Taking on debt as a business can be scary, but there are restaurant equipment financing opportunities that allow you to purchase the equipment you need without seriously disrupting your cash flow. In this article, you will learn about the benefits of equipment financing in comparison to other funding options.
What Kind of Equipment Is Usually Financed?
Whether you are starting a new restaurant and need new equipment or you are established and need a few upgrades, you do not need to come up with the entire cost upfront. Equipment lenders can help you obtain everything you need, including:
- Vehicles for delivery transport
- Small appliances, usually as a bundle
- Commercial kitchen appliances, such as a stove, oven, refrigerator, and walk-in freezer
- An up-to-date POS system
- Other large pieces of specialty equipment
- Furniture for the dining room or waiting area
What you need depends on the type and size of your restaurant. Lenders consider a number of qualifications, and sometimes financing is not the best option. In such cases, leasing may work better.
How Do Equipment Loans and Leases Differ?
The primary difference between an equipment loan and an equipment lease is ownership. With a loan, you retain ownership of the equipment from the start. Equipment under lease remains in the ownership of the lender. When the lease ends, the lender often allows you to purchase the equipment at a discounted price, or you have the option to return it and lease a new piece of equipment under new terms.
There are times when restaurant equipment leasing is the more logical choice. If the piece of the equipment you need changes often, it is financially more sensible to lease rather than purchase. Leasing may also be a better option if you are not able to produce a down payment or if your business or personal credit is not in good standing.
Other reasons to lease include:
- The lessor handles repairs.
- The application process is easy.
- The terms are more flexible.
- You do not need collateral.
If you like the equipment and want to keep it without purchase, you also have the option to lease it again.
What Are the Benefits of Restaurant Equipment Financing?
There are several benefits associated with financing equipment over purchasing outright. A few of them include:
- You may have the opportunity to write off some or all of your purchases on your taxes. This depends on the structure of your loan, but most of the time, equipment purchases are treated as a business expense.
- When you do not dip into your own funds to purchase equipment, you are able to keep more cash on hand for other aspects of the business. In the restaurant industry, effective cash flow management is important for expenses such as payroll and inventory.
- Compared to other business loans, the terms of equipment financing are typically better. That typically means lower interest rates.
- Equipment financing usually requires no down payment. In cases where it does, the amount is relatively low.
- The amount of your equipment loan is equivalent to the value of the equipment. Therefore, the equipment acts as collateral, which then translates into lower, fixed monthly payments.
- You can afford better quality equipment when you aren’t stretching your budget to acquire it.
- Having the newest and latest equipment boosts employee morale as well. Your team may take more pride in their work and work more efficiently when the equipment they use allows maximum productivity.
- You gain an edge over the competition if you have the best equipment, both on the dining room floor and in the kitchen.
The furniture you use helps to create an ambiance in the restaurant, and the equipment you have in the kitchen affects the quality of the food you serve.
What Are the Alternatives?
There are other options for funding the restaurant equipment. You have a variety of options that vary in qualification requirements. Some common financing options used across all industries include:
- The business line of credit. If awarded, you have access to a pool of credit to be used at your discretion. The amount is predetermined and you only pay interest on what is withdrawn. Once you repay what you access, it is again available to you. This funding is flexible and good to have for unexpected expenses, such as equipment repairs.
- Term loan. This is the traditional loan in which a lender provides you with a loan amount upfront and you agree to pay monthly installments plus interest. They are sometimes difficult to obtain through the bank, but you also have the option to use an online lender.
- Credit card. Most businesses have a credit card for recurring expenses. They function much like a short-term loan and are not a sensible option for making large purchases.
- Personal loan. If your business has a limited history or a low credit score, a personal loan can be used to finance business expenses. However, this is a riskier option because your personal credit is affected if you fail to make payments, and you have to provide collateral from your personal assets.
If you are searching for financial assistance specifically to purchase new equipment, the business line of credit and term loan options would be the only reasonable alternatives to equipment loans and leasing. Unless you are in excellent standing with the lender and have a strong business credit history and several years in operation, you will find that term loans are more expensive. Equipment financing is almost always the fastest and least expensive way to obtain new equipment.