Restaurant Equipment Financing: What You Need to Know

Equipment, appliances, and gadgets are all necessary for day-to-day restaurant operations. However, these pieces of machinery can be costly, which puts startups and new restaurants at a disadvantage. Buying and upgrading pieces of equipment can take a large chunk out of their capital.

Fortunately, small-business owners may have access to restaurant equipment financing. Read on to find out about financing options available based on your business needs and the eligibility criteria you can meet.

What Is Restaurant Equipment Financing?

Restaurant equipment financing refers to loans available to business owners for purchasing equipment without paying for it upfront. Food service equipment like commercial mixers, freezers, and ovens can use up a company’s working capital. That’s why business owners typically take out small-business loans to purchase the machinery they need for their operations.

With equipment financing, businesses can spread the cost over time as they pay down the loan. Since restaurant owners don’t have to pay for the machinery upfront, they have the cash to spend on business expenses like supplies, utilities, and wages.

How Can You Use Restaurant Equipment Financing?

Obviously, the specific type of equipment you’ll need depends on the foods you prepare, your culinary style, and your menu. Here are some examples of commercial kitchen equipment and restaurant assets you can purchase through equipment financing:

  • Commercial ovens (e.g., convection, combination, and pizza ovens)
  • Cooking ranges and stoves (e.g., gas range, electric range, grills)
  • Ventilation system
  • Refrigerators and freezers (e.g., walk-in coolers)
  • Specialty equipment ( e.g., fryers, vertical broilers, sous vide machines)
  • Mixers (e.g., countertop mixers, hand mixers, floor mixers)
  • Cooking and preparation equipment (e.g., knives, pots and pans, storage containers, dispensers)
  • Dining room furniture
  • Dishwashers
  • Ice machines
  • Delivery vehicles
  • Computers and point-of-sale systems (POS)

When Does Financing Restaurant Equipment Make Sense?

Running and growing a successful business in the restaurant industry means managing your cash flow while meeting customer demands and expectations. You also must ensure you’re staying competitive and looking for opportunities to expand your operations.

Similarly, starting a restaurant means having everything you need before opening your doors. This includes the right people and equipment, so you can deliver the service and product you promised.

This is why equipment financing can be a good option for business owners. It offers a way to invest in necessary appliances and gadgets to run and grow your restaurant business. The funding process for these types of financing is typically quick and easy.

You can apply for equipment financing via traditional banks or online lenders. You can also apply to the U.S. Small Business Administration SBA 7(a) loan program for equipment loans. However, banks and SBA loans typically have stricter criteria than online lenders, so it’s a good idea to check first.

Alternative lenders like restaurant equipment financing companies can offer competitive interest rates and may have more lenient eligibility requirements. For instance, most bank loans require that your business be operational for at least two years. With online lenders, though, you can get approved for a loan as long as you’ve been operating for a minimum of six months.

In an equipment loan agreement, the machinery you purchase serves as collateral. This means the lender can seize assets if you default on your payment. But since the loan is secured, it’s easier for borrowers with bad credit to qualify. Learn how to get equipment financing with bad credit.

What Are Typical Terms for Restaurant Equipment Financing?

The most common equipment financing option is generally set up like a term loan where the borrower repays the loan amount plus a fixed interest rate with set monthly payments.

In an equipment loan contract, the lender lets a borrower finance between 80% and 100% of the equipment purchase. So, the amount you qualify for depends on the equipment cost. The repayment term usually follows the equipment’s expected lifespan, often around three to 10 years.

For example, let’s say you’re setting up a cafe and need a commercial oven, a refrigerator, and furniture. The total cost of everything you need comes to $50,000. You find a lender willing to loan you 100% of the value of the appliances and furniture, and you receive $50,000 as an equipment loan with repayment terms of five years.

This means you can start your business without paying for costly essential equipment upfront and use your available capital for other business expenses (like buying supplies and paying salaries and wages).

What Credit Score Do You Need for Restaurant Equipment Financing?

At Clarify Capital, we recommend borrowers have at least a personal credit score of 550. Your credit score reflects your creditworthiness, so it’s always an important factor when applying for loans. A higher credit rating can get you better interest rates or loan terms.

However, borrowers with poor credit can still get equipment financing approval since the equipment secures the loan and lowers the risk for lenders. If you have a less-than-ideal situation and don’t think you meet any loan requirements, speak to a Clarify advisor to explore your options.

What Interest Rate Can You Expect With Restaurant Equipment Financing?

Interest rates for restaurant equipment loans depend on the lender. You might get low rates from banks and credit unions if you meet their eligibility requirements. Otherwise, restaurant equipment financing companies and online lenders can also provide competitive rates.

If you’re applying through an SBA financing program, negotiate your rates with the loan provider. You might get a lower rate since funding comes from banks, credit unions, and nonprofit organizations.

Ultimately, your interest rate depends on the lender, your personal credit score, your company’s monthly revenue, and your time in business. For example, when working with Clarify Capital, you may qualify for an APR as low as 6%.

Is It Hard to Finance Restaurant Equipment?

No. On the contrary, qualifying for equipment financing can be easier than other loan options since the equipment serves as collateral. And while banks and credit unions may have more stringent requirements, plenty of online lenders offer this type of financing to entrepreneurs.

Here are our minimum requirements at Clarify:

  • Credit score: We recommend a minimum credit rating of 550 to qualify for most loans. Lenders use your personal credit score to assess your creditworthiness, which represents their risk in lending to you.

  • Monthly revenue: You can get approved for most loans, including equipment financing, if your business has at least $10,000 in monthly revenue. Lenders want to see consistent cash flow to ensure you can afford to repay your loans.

  • Time in business: Lenders assess their risk through the length of time you’ve been in business. The more established you are, the less risky. Luckily, the lenders we work with only require a minimum of six months in business.

  • Equipment value: Since the equipment you’re going to buy serves as collateral for the loan, lenders consider its value when assessing your loan application. They’ll also look at each asset’s resale value to determine the amount you can borrow.

Have all of this information handy so the loan application process is quick and easy. Check your credit score and have legal identification documents, such as a driver’s license or employee identification number (EIN), ready.

Ensure you have copies of your tax returns and bank statements, and prepare to show monthly revenue through business statements like profit and loss (P&L) or cash flow statements. Finally, make a list of the pieces of equipment you need and get the most accurate pricing you can find, including transportation and any additional costs.

Get the Equipment Financing You Need for Your Restaurant With Clarify Capital

Upgrade or get new equipment for your restaurant to stay competitive and meet customer demands. You don’t have to wait until you’ve saved the capital. Fund your investment through equipment financing.

Fill out our simple application form or call today to speak with a Clarify Capital advisor. Your dedicated advisor will walk you through the process and help you choose the best financing solution for your business needs.

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