What Is Restaurant Equipment Financing Used For?
Starting a new restaurant comes with a lot of heavy investments. From monthly expenses such as utilities and rent to more major ones like kitchen equipment, most restaurant owners turn to restaurant equipment finance solutions. If you’re in the market for the latest kitchen gadgets, having an agreement with a lender is a great and attainable form of funding. With this option, they agree to give the amount you need to purchase new (or used) equipment—which you then pay off after an agreed time plus interest. But why consider this business finance solution instead of just coming by with the funds on your own? Allow us to discuss restaurant equipment financing in detail.
Does Your Restaurant Need Equipment Financing?
Why is this financing solution becoming more and more popular? Here are some reasons you may want to consider this option:
No Cash On Hand
When old equipment breaks, of course, you have to buy a new one. However, if you weren’t expecting to shell out some cash this week because an important piece of equipment broke, say a stove or fridge, you probably don’t have enough funds available to shoulder this expense.
If you absolutely need new equipment but don’t have the cash yet for the purchase, restaurant equipment finance is the solution for you.
Inconsistent Cash Flow
Most restaurants fail because of cash flow mismanagement. This usually happens when you put in too much money even before you recuperate your investments.
One way to avoid this is to take out a restaurant equipment financing agreement for your next purchase. Since you can pay it off over several years rather than all at once, you don’t need to worry about cash flow issues. If you delay getting financing and an accident happens, you’re in deep trouble.
No Additional Collateral
This financing option is a “self-secured” loan. Meaning, the equipment you’re financing is collateral on its own. If you, for some reason, choose to default your payments, the lender will seize the equipment and sell it to repay the loan.
So if you’re looking for a financing option but hesitant to put up any collateral, then restaurant equipment financing is your bet.
In short, this is an excellent choice if your restaurant has equipment needs that you can’t meet without affecting its cash flow. But when deciding whether or not this option is for you, you need to consider the typical loan requirements, the overall costs, and its pros and cons.
Businesses that qualified for financing typically:
- Earn more than $130,000 a year
- Have a minimum personal credit score of 630
- Have been in the business for no less than two years
On the other hand, the financing costs will depend on the cost of the equipment you require. Rates usually run from 8% to 30%, which you should pay for the useful life of the equipment but not for more than ten years.
Restaurant Equipment Financing Tips
If you’ve considered this option for your future purchases, we suggest keeping these tips in mind before making decisions for the future of your business.
Start by replacing important restaurant equipment even before they become old and unreliable. If you have a financing plan that expires a year or two before the equipment reaches its expected lifespan, chances are you won’t get stuck in a situation where you have to pay more than what’s fair just to keep doors open.
A sudden equipment emergency is not a big deal if you have a plan. Once you have the right financing, you can make smarter purchases at a fair price.
Organize Your Financial Information
When applying for restaurant equipment financing, make sure your financial documents are in order. Ensure that they’re all accurate and updated, and have your personal and business credit score ready since most lenders need these when assessing if your business is suitable for cash flow finance.
With well-organized financials, you can assess your debt service coverage ratio. You’ll build a stronger case on why you need the money too, and lenders are more likely to trust that you can repay them on time.
A loan helps you fill the gap you make when buying expensive equipment that is crucial for the development and growth of your business. Preparation is key. If you think ahead and make sure your finances are in order, securing an equipment financing loan for your restaurant is a cinch.
mhf for Your Restaurant Equipment Financing Needs
A restaurant is perhaps one of the most difficult businesses to maintain. Then, aside from the operating costs that you have to think about monthly, you should also think about how to purchase the very expensive equipment necessary to run your business. This is where lenders offering restaurant equipment finance come in handy.
Here at mhf, we work with you and try to understand your needs to find the perfect lender who will fit your business’s requirements. With access to several major banks and non-financial institutions, you can get the funding that you need in no time.
Worry less about restaurant equipment financing and focus more on serving your customers’ delicious food!