New restaurant equipment can either be bought outright with cash, credit card, or a bank loan, and when those options are not available or desired restaurant equipment can be leased. Leasing new restaurant equipment is a lot like leasing a new car. After agreeing upon terms and final purchase price, the equipment is delivered to your restaurant, and you just have to make monthly payments for the duration of the term. At the end of the leasing term, there are options to own or return the equipment.
Reasons to Lease
There are multiple reasons to lease new restaurant equipment. New restaurants are especially dependent on having cash reserves in the bank and leasing offers an opportunity to preserve cash for start-up capital and covering unplanned expenses. Listed below are the major reasons why you would want to lease your restaurant equipment:
- Keep cash in the bank. Many new restaurateurs do not have an abundance of cash on hand. Leasing is an opportunity for new restaurants to get the equipment they need without burning through all of the cash.
- Ideal during tough economic times. During tough economic times, many commercial kitchens decide that it is better to lease new equipment than to buy it outright. This helps to preserve cash reserves for other expenses, like payroll.
- Fixed payments. Once you settle upon your terms with the leasing company, the rates are locked in for the duration of the leasing period. This creates a predictable budget for monthly spending and minimizes incidental expenses.
- Maintain seasonal business budgets. Some restaurants are not open year-round. Leasing commercial restaurant equipment allows these types of businesses to maintain smaller budgets within a limited amount of time.
- Expanding an existing kitchen. For a well-established restaurant, the desire to expand is natural, but the costs and risks are high. Leasing new equipment allows owners to grow their kitchen and menu without the full cost of outfitting a larger space.
- Obtain expensive equipment. Leasing offers a way to purchase new restaurant equipment regardless of how great the business’s credit rating is.
- Does not hurt bank credit rating. As long as you do not fall behind on your payments, leasing equipment will not affect your credit rating with the bank. In fact, it may even help your credit rating.
Drawbacks of Leasing
Though financing your new restaurant equipment may seem like a good way to start, grow or maintain a business while keeping cash in the bank, there are a some reasons when you should not or cannot lease restaurant equipment.
- Minimum lease amount. Most leasing companies suggest a minimum lease amount. For new restaurant equipment, the minimum lease amount is $1,500 – $2,000. If you lease under this amount, leasing application fees and interest rates usually make it more worthwhile to just buy the equipment outright.
- Not everything can be leased. Smallwares, furniture and custom-built restaurant equipment are too hard to track ownership, depreciate in value rapidly or are difficult to resell in cases of repossession. For this reason, many leasing companies do not have programs for leasing customized equipment and supplies.
- Cannot use equipment as collateral. Since you do not own the restaurant equipment outright, you cannot use it as collateral for future bank loans.
- Interest rates can be high. Leasing rates and terms listed on food service equipment companies are usually based on high credit scores. If your credit rating is less than ideal, your monthly payments and interest rate can be significantly higher than those advertised by the restaurant equipment and supplies company.
- No benefit for early buyout. Once you sign the leasing agreement, you are responsible for paying the entire amount of the lease. For example, if you want to lease $10,000 worth of restaurant equipment, with an excellent credit rating and 60 month lease term, you will be paying around $249 a month. The total cost of the lease will be $14,940, and you will be responsible for paying the total amount, even if you want to buy the lease out early.