Restaurants, no matter how small or large, have a tendency become staples within their communities. There are some restaurants that have been in the same location for decades with the same owners. Others have new spots that attract tourists and residents alike. With so much competition, having consistent capital sources and the right financing options can make the difference between success or failure.

Restaurants have many options for funding. These include bank loans, investments from angels, credit cards and lines of credit. Each option has its pros and cons. Before making financial decisions, it is important to do your research on which one works best for you.

It is essential to understand all options in order to make the best decision for your company. Let’s look at the different financing options available for restaurants and how to choose one that suits your needs.

What Type of Restaurant Equipment can you finance?

Restaurants need a variety of equipment, including stoves and refrigerators, dishwashers, ovens, and microwaves. All of this can be costlyspan styling=”font-weight 400 ;”>. There are financing options for all types of restaurant equipment.

Restaurant owners should do their homework and compare various lenders prior to making a decision. Examining fees, payment schedules and interest rates can help you choose the right option for your restaurant.

Financing Vs. Leasing

Leasing equipment is very similar to leasing a car. You make regular payments over a period of time in return for the use of the asset. Each payment is made to the vendor for the use of the asset and not as ownership. You must return the asset to the lender at the end of the lease.

A contract agreement is made with a lender to finance the purchase of equipment. The borrower then repays the lender through structured payments. The repayment period works in the same way as leasing equipment but you can keep the asset. You can deduct interest payments from your tax return and each payment to the lender will count towards the asset’s total cost.

If you don’t plan to use the equipment for a long time, such as short-term projects or contracts, leasing equipment can be very beneficial. If you intend to use the asset for future business purposes, financing the equipment may be more beneficial and easier than paying over time.

Financing Options For Restaurant Equipment

When it comes to investing in new equipment, restaurant owners must consider many options. Many people find it difficult to pay for essential items upfront. This is why alternative financing options may be necessary. These are some of the most common financing options.

Term Loans

Term loans are lump-sum payments of capital that you pay to a lender over a specified period. These loans are most useful when you know the exact cost of an asset, project or other expense. However, you can also get a term loan to fund working capital.

Term loans are ideal for financing restaurant equipment because they allow you to secure the capital you need and make payments on a more manageable basis. Some lenders may require collateral to secure the financing. You can’t always use your asset.

Equipment Financing

Equipment financing is, you can guess, a financing option that’s specifically designed for asset purchases such as restaurant equipment. This is what most people use to finance restaurant equipment.

After you have determined the equipment that you wish to purchase, you will need an equipment financing lender. This lender will finance the asset’s cost at the point of sale. You then repay the lender the cost within a specified timeframe, and your payments will be used to pay the principal or interest.

The equipment you are looking to buy can be used as collateral, unlike term loans. The interest rates you receive will vary depending on who you work with and your financial history, but you can expect to get a rate between 2% and 20%.

Business Line of Credit

A business credit line is a flexible source of capital that you can draw on an as-needed basis. The amount that you draw is not subject to interest. If your line has a revolving feature, you can borrow the same amount again once you have repaid the loan amount. The money can be used to purchase equipment for restaurants, pay operational expenses, buy inventory, or launch a new marketing campaign.

Although you can use funds from your credit line to purchase equipment, it is not usually recommended. This financing option offers greater flexibility, but lenders will not offer large credit limits unless you have strong financial information. You can save money by using a different financing option for your restaurant equipment.

Revenue-Based Financing

In return for short term capital, revenue-based financing can increase your company’s profitability. This is essentially a loan that gives you an advance on future sales, but which you pay a portion to the lender.

This financing is best for seasonal restaurants that have cyclical revenue cycles. You can use revenue-based financing if you are able to see the majority of your revenue in a particular time period and still need capital to buy, fix, or replace any equipment.

Which option is best?

The truth is: The truth is that it all depends on your situation and goals.

Interest Rates

Most people worry about the cost of capital. However, interest rates can vary depending on your financial history and the lender you work with. Equipment financing has the highest average interest rate, followed by revenue-based financing and business lines of credit. However, there are many factors that influence the interest rate you will receive.

Consider it thisspan styling=”font-weight 400 ;”>: Higher interest rates can be obtained with more affordable financing options. You can get better terms if you have strong financial information and a good credit score. While you don’t want the interest rate to be higher than it needs to, you must consider the long-term financial benefits of your investment. Is the potential for revenue growth that will offset the financing cost? If this is the case, it may be worth exploring the possibility and seeing what your business might look like once you have grown.

Repayment Schedule

A longer term means you have more time to pay. However, a shorter repayment period can save you money on interest payments. You will need to negotiate repayment terms with the lender in most cases. However, if you are looking for the longest terms, it might be worth considering using funds from a term loans for restaurant purchases.

Flexibility

Entrepreneurs may plan to buy multiple pieces of equipment within a short time. You might be able to use a term loan to finance all of your equipment purchases if you are certain of its exact cost.

If you prefer to buy equipment on your schedule and have capital, a line of credit for a business or financing with a longer repayment term might be more beneficial.

How to Apply For Restaurant Equipment Financing

After you have decided on the financing option you will use to purchase restaurant equipment, you can start to prepare for the application process.

First You’ll need to search for lenders and learn about their programs. There are lenders who specialize in certain industries, or only offer one type of financing (e.g., equipment financing agencies), and lenders that can work with multiple businesses. You will get the best results if you research all lenders and choose the top-performing ones.

Next, gather all relevant business documents including bank statements, credit scores information, revenue projections and other documents. You can save time by anticipating this stage and not having to go back and forth with documentation requests.

Lastlyspan design=”font-weight 400 ;”>, You’ll need to fill out an application with each lender you’ve selected. There may be many options available to you, which is great. While you want to explore as many options as possible, you should also consider the time it will take to fill out applications and wait for decisions.

National Business Capital is a FinTech marketplace with over 75 lenders that can help you streamline restaurant equipment financing. Multiple competitive offers are available to you with one application. Each offer is tailored to your needs. This saves you time and effort. It also makes it easier to compare offers and find the right lender.

What else should I know about financing restaurant equipment?

Last thingspan styling=”font-weight 400 Financing equipment could qualify for tax deductions like Section 179. This allows you to deduct the entire value of the equipment in the current year, rather than a percentage over the years. To qualify, however, the equipment must be used within the same tax year.

This means that you can buy a walk-in freezer unit for $100,000 and deduct most of it from your current year’s taxes. While most entrepreneurs will use Section 179 to save money on taxes at the end, you can also do it at any time throughout the year.

Finance equipment rather than leasing it is one of the most attractive reasons. Although monthly payments may be less in a lease agreement, the tax benefits and the ability to keep the equipment after the term ends can far outweigh the capital cost.

Financing Your Restaurant Equipment with Ease through National Business Capital

There is no single approach to financing business. Our 75+ lenders marketplace allows our Business Finance Advisors to streamline the process. This means that it takes hours, not days, and not weeks, or months to apply to each lender individually. Our easy-to-use platform makes financing restaurant equipment financing simple so that you can focus on what is most important–your business.

To see all the offers that we have for you, please complete our online application

FAQs

How can you finance used restaurant equipment?

Yes! Yes! Equipment that has been used for a while will have a shorter life span than new equipment. Before you sign the contract, make sure you get an evaluation of the equipment.

How can I make my restaurant equipment last longer?

It is important to use restaurant equipment only for the intended purpose. Routine maintenance should be performed according to a schedule. You should immediately stop using the equipment if you see any performance problems or wear and tear. Even though it may seem unnecessary with modern equipment, taking proactive steps can prolong its usefulness well beyond its expected lifespan.

What credit score do you need for equipment financing?

National Business Capital is able to help you obtain equipment financing without requiring a credit score of 625+. Their team will help you buy the equipment you need to grow your business if you have more than $120,000 in annual revenues and are in business for at least 1 year.

Can Applying for Financing Hurt Credit?

It could, but it shouldn’t. When assessing your creditworthiness, some lenders may perform “hard credit checks”, which can damage your score. You should work with an organization that does “soft credit checks,” such as National Business Capital, to improve your credit score.

What happens if I am denied for restaurant equipment financing?

A denied application does not mean that you are out of luck.

There are many reasons why applications may be denied. The lender might have felt that you don’t meet their eligibility criteria, or maybe there was an error in your application which led to AI denying your application. If one of your applications is denied, you can fill out multiple applications to give yourself breathing room.

Don’t try to put all your eggs into one basket. This old saying goes: “Don’t leave your business hanging.”