Equipment financing is an excellent option for many restaurants, whether you’re starting a new restaurant or looking to update equipment at an existing location. In this article, we’ll dive into what restaurant equipment financing is, the types of equipment you can finance, financing vs leasing, the benefits to equipment financing, how to qualify and how to apply.
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What Is restaurant equipment financing?
All restaurants need basic kitchen equipment, and today many food operations demand intense, specialized items like commercial mixers, walk-in fridges, flat-top stove ranges, and pizza ovens. The high sticker price on all of these items can be prohibitively expensive for small business owners, especially for new restaurateurs or those looking to expand an already existing business.
Restaurant equipment financing is a lending tool aimed at addressing this challenge. Equipment financing empowers small business owners to buy a piece — or a number of pieces - of equipment and pay back the financing over a period of time. Restaurant equipment financing, therefore, is a way you can obtain restaurant equipment without paying for it all upfront.
An appealing aspect of restaurant equipment financing is that the equipment being financed serves as collateral, so borrowers don’t have to sign over other assets as collateral. Another appealing aspect of this type of financing is that you can often borrow as much as 100% of the cost of the equipment being purchased.
As a result of its self-secured nature, restaurant equipment financing is often a great option for startups and restaurant owners with challenged personal credit who are looking for business loans.
What type of equipment can you finance?
You can finance restaurant equipment of all types and sizes, from walk-in refrigerators to ovens, dishwashers to blenders, and much more. With equipment financing, you can also finance items that might not immediately seem like equipment, such as furniture, fixtures and technology systems such as point of sale (POS) systems. Examples of what you can finance with restaurant equipment financing:
Refrigerators
Dishwashers
Bar Stations
Mixers
Ovens
Prep Tables
Other commercial appliances or equipment
Point-of-sale (POS) systems
Dining room furniture
Delivery vehicles
Many lenders will work with you to finance used equipment as well as new. Financing for used equipment is most readily available if you are buying from an equipment vendor versus a private party, such as through Craigslist or a private auction.
In some cases, if you very recently bought new equipment from a vendor, you may even be able to finance that equipment you bought already. This type of financing is often accomplished with what is called a “sale-leaseback” transaction, where you technically sell the equipment to the financing company who then leases the equipment back to you.
Equipment financing vs equipment leasing
Although many use these two terms interchangeably, there’s actually a difference between equipment financing and leasing. With financing, you’ll formally own the equipment, but with leasing, the lender will formally own the equipment as you use it, and you can choose whether or not you want to purchase it for fair market value at the end of your lease.
Restaurant equipment financing means that your restaurant will be the legal owner of the equipment you’re using—and can calculate this equipment into your restaurant’s total assets. This provides a tax benefit, as you’ll be able to write off part, if not all, of the purchase.
One drawback with financing vs. leasing - it’s possible that your restaurant equipment might be obsolete by the time you finally pay it off the financing in full. And though you might own the equipment, if it’s outdated, you’ll own equipment that you may not be thrilled to own.
That’s where restaurant equipment leasing wins out over financing - you’ll simply pay for your equipment on a monthly basis, and when the leasing agreement expires, if you want to upgrade, you can choose not to purchase the equipment for fair market value.
If you anticipate your restaurant quickly outgrowing the equipment that it needs right now, then you might consider looking into restaurant equipment leasing rather than financing.
However, equipment leasing is typically much more expensive compared to equipment financing. And many if not most types of equipment aren’t going to be obsolete at the end of the financing period. Currently, in the restaurant industry, financing has become much more common than leasing.
The primary benefit of restaurant equipment financing is that it allows your business to obtain expensive, but necessary, pieces of equipment without paying for it upfront. By doing this, you can start earning money using the equipment without it costing a huge chunk of capital all at once.
Benefits of restaurant equipment financing
The primary benefit of restaurant equipment financing is that it allows your business to obtain expensive, but necessary, pieces of equipment without paying for it upfront. By doing this, you can start earning money using the equipment without it costing a huge chunk of capital all at once.
Here is a more in-depth list at some of the benefits of restaurant equipment financing:
Keep cash on hand: Whether you’re opening a new restaurant or updating old equipment, financing allows you to keep more cash on hand while still getting you what you need. This is particularly important in the restaurant industry, where cash flow management is so critical.
Pay little upfront: Unlike many traditional loans, like bank loans, equipment financing requires little-to-no down payment. Financing to 100% is often available. Since the equipment itself acts as collateral, there’s less risk for the lender and lower costs for you.
Ensure top-quality equipment: Take your professional kitchen to the next level. By stretching out your payments, you’re able to afford better quality equipment than if you had to pay upfront.
Keep equipment up to date: Stay ahead of your competition with the latest and greatest professional kitchen equipment available. In many cases, newer equipment will help improve your kitchen’s output, speed up throughput and maintain energy efficiency.
Have low, fixed monthly payments: Since equipment financing comes with built-in collateral, you’ll likely see lower monthly payments than you would with other business loans. Also, you get the benefit of a fixed rate for the length of your loan.
Get better interest rates: Along the same lines as above, interest rates can be lower than compared to other types of business loans.
Bring energy back into your business: When your staff has to work with old, outdated equipment, it can take a toll on morale. Your team may get frustrated with the accommodations they have to make for old equipment. Bringing in new equipment in can re-energize your staff and bring new life back into your business.
Reap the tax benefits: You can usually write off part (if not all) of your equipment purchases. This is specific to financing, as opposed to leasing, where you don’t actually own the product outright during the term of the lease.
How do you qualify for restaurant equipment financing?
Today, more than ever, there are many lenders offering restaurant equipment financing. These include banks, non-bank lenders, online financial services companies and equipment vendors. Thanks to the array of lending sources, there are financing options for most types of restaurants and restaurant owners.
If your restaurant isn’t open yet, or has opened only very recently, qualifying will largely be dependent on the personal credit background of the owner. However, there are many lenders who will make loans for owners even with weak credit, since the loan has as its collateral the equipment you are buying.
To qualify for lower rates, or to access loans that do not require a personal guaranty by the owner, your restaurant will have to have been in business for a little while. Some lenders require a year in business, while others require two or more.
These restaurant equipment financing options typically require $100,000 or more in annual revenue. Lenders will also want to review the personal credit of the owner, even if a personal guaranty isn’t required, and people with higher scores can often receive lower interest rates or longer terms.
Restaurant owners can often qualify for lower cost financing if their business credit history is good. Newer businesses, or those that have not used financing, may not have built much of a business credit profile. For this reason, it’s smart to find and use some business credit to build your business credit profile. This can include business loans, business credit cards and equipment loans.
The application process for restaurant equipment financing is not as stringent as other forms of financing, like a term loan from a bank, in part because the restaurant equipment serves as collateral.
After approval, funds often arrive as soon as 24 hours. You can then buy the needed restaurant equipment with this money. Every month, you’ll pay the same agreed-upon repayment amount—and once the financing is repaid, which usually takes from 1–5 years, you own the equipment.
How do you apply for restaurant equipment financing?
There are currently hundreds of lenders in the marketplace, and even thousands when you include SBA lenders. This presents some benefits and some challenges.
On the one hand, the diversity of lenders means there is a wide variety of restaurant equipment financing options open to a wide variety of restaurants and owners. There are lenders who offer low-rate financing to those with great credit, and lenders that offer restaurant equipment financing at higher cost to those with poor credit. Some will loan to startups, while many will not.
This huge array of options also presents challenges. How are you as a restaurant owner expected to know which lenders to turn to for which type of businesses and owners? And how do you know which companies to trust?
To apply for restaurant equipment financing, you basically have three choices:
Apply with your bank directly. This can be a good option if you have a great relationship with your bank, your credit is strong, your business financials are in shape and you want the kind of loan they offer. The last point is the critical one - most banks only have one or two types of loans, and that’s all they will offer if you are approved.
Apply separately to a number of lenders. This was once more realistic than it is now. Back when you had access to a smaller number of banks in your locality, this was a more possible approach. Now, however, with the internet and the growth in the number of non-bank lenders, this isn’t reasonable for most restaurant owners. Why? There are thousands of lenders, and the lending landscape is constantly changing. For even someone doing it full time, it is very difficult to keep up with the types of loans, their terms, their benefits and drawbacks, their processes and their guidelines.
Work with a financing broker. A financing broker, or loan broker, is someone who is an expert at all of the ins and outs of restaurant equipment financing and can help you navigate this complex and confusing financing world. When evaluating a loan broker, be sure that: you can speak to a live person, the company has been around for a while and you can identify the company leader. Many brokers are small firms, so at least be sure you can see who the owner is and find her or him on LinkedIn.
Some companies, like Everfund, allow you to apply online and without any impact on your credit score. Then, within hours, they find the best option, or options, for your specific equipment purchase and business situation.
Can you get restaurant equipment financing with bad credit?
As mentioned before, bad credit won’t necessarily mean that you won’t be able to access restaurant equipment financing. In fact, the self-secured nature of equipment financing makes it ideal for less-qualified business owners. Because the equipment that you purchase acts as collateral, lenders take on less risk by providing this type of financing.
Many equipment financing lenders will pay just as much attention to the quality of the restaurant equipment you’re trying to purchase as they will to your credentials. Others will weigh your time in business and your monthly average revenues. Also, if your restaurant has been open awhile and started to build business credit, some lenders can then look past poor owner credit scores.
To speak more specifically - some restaurant equipment loan options require owner credit scores of 600 or even 650 or more. Most SBA lenders, for example, will require scores of 650 or higher. However, there are still plenty of options for owners with credit scores below 600.
While a lower credit score, or the fact that you’re still pre-opening, may mean you’ll be offered financing with higher interest rates than hoped, borrowing to purchase your restaurant equipment may still be the best way to proceed and preserve the capital you need for other things.
Finally, if you’re working with less-than-perfect qualifications—like poor personal credit, or no business history - then restaurant equipment financing could offer you the most affordable terms you’ll be able to find. Because the equipment itself secures the financing and takes some risk off the lender, less-qualified businesses will be able to access longer repayment terms and lower interest rates than with other forms of business financing.
If you’re working with less-than-perfect qualifications—like poor personal credit, or no business history - then restaurant equipment financing could offer you the most affordable terms you’ll be able to find.
Can a startup get restaurant equipment financing?
Just as in situations with poor personal credit, the same general concepts apply to accessing restaurant equipment financing for a startup restaurant. Some lenders do not require any time in business at all, while others may require just 3 or 6 months time in business.
Generally speaking, if limited time in business is your only setback, finding restaurant equipment financing as a startup will be much easier than it would be if you were looking for funding with very poor credit but your restaurant has been open awhile.
If you’re working with good personal credit and solid equipment, then many equipment financing providers will be willing to work with your application and make you an offer.
Again, because the equipment you purchase with the proceeds of your financing will act as collateral, lenders are less strict with their requirements—the equipment collateral means they’re more likely to get their money back one way or another.
Wrap-Up: Final thoughts on getting restaurant equipment financing now
Whether you’re starting a new restaurant or looking to purchase new equipment at an existing location, restaurant equipment financing can be a great option for acquiring your equipment without depleting working capital you might want for other purposes.
Equipment you can finance includes not only traditional kitchen equipment and appliances, but also furniture, fixtures and technology systems. When evaluating financing options, you may see both equipment loans and leasing options. Both have their advantages, but more options are available for equipment financing where you own the equipment outright from day one.
Finding the best equipment financing options has become more difficult with the surge in the number of online lenders, which include both banks and non-bank lenders. You can spend time applying to many different lenders yourself, but often the best and fastest path to successfully getting restaurant equipment financing is to work with a trusted finance broker like Everfund.
Finally, don’t hesitate to apply for financing even if you have less than stellar credit, or your restaurant doesn’t have an operating history yet. Thanks to the nature of restaurant equipment loans, where the collateral is the very equipment you are financing, there are lenders out there who will consider a wide array of individual situations.
About the Author
Mike Spitalney
Mike Spitalney is the CEO and founder of Everfund. Mike is on a mission to help small businesses get the best financing for their needs and avoid the confusion and complexity of today’s lending world. Over two decades, Mike and Everfund have helped thousands of businesses thrive and grow using a variety of short and long-term loan options, from working capital loans and lines of credit to SBA and bank loans and commercial mortgages. Outside work, you'll usually find Mike outside running, hiking or biking.