Get the equipment you need to provide your customers with the best dining experience.
Are you interested in opening a restaurant to capitalize on your grandmother’s most amazing recipes, in a funk-a-delic setting? Or, does you current family-style restaurant operate with outdated restaurant equipment in dire need of replacement? Either way, read on, the narrative below explains: What is Restaurant Equipment Finance and How does one obtain this financing?
New restaurants or restaurants in the process of being upgraded are rather expensive undertakings. Even the smallest business enterprises may need tens of thousands of dollar to purchase restaurant equipment to ensure their success. However, most potential and existing restaurant owners often fall short of the cash needed to purchase restaurant equipment they need for the restaurant. There is a solution though. This is where the concept of restaurant equipment finance fills an important financing need for business owners.
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How Does Restaurant Equipment Finance Work?
Restaurant equipment is costly. The funding of the equipment can be paid for by your own cash funds or, by a loan specifically designed for the purchase of restaurant equipment. Specialty lenders have a variety of financing options to meet the cost of the necessary restaurant equipment. While some lenders fund upwards of 100% of the equipment’s purchase price, the available financing is strictly contingent upon the business’ credit history, among other credit criteria. For example, a start-up restaurant may only be offered equipment financing of 75% – 90% of the equipment’s costs due to a new or non-existent business credit history.
This specialty loan will only finance the cost of the equipment in addition to the taxes required for this specific transaction. The financing does not typically include charges for installation, handling or delivery. Traditional Restaurant Equipment loans are usually offered at average interest rates at the time of the loan’s inception. They are available as both fixed and adjustable interest rates. The terms for equipment loans generally average 3 years. It has been determined that a three-year term is sufficient enough to repay the restaurant equipment costs and to prepare amazing cuisine for your customers.
Can You Lease Restaurant Equipment?
In addition to purchasing restaurant equipment through various financing loan options, borrowers may choose to lease, rather than finance, their restaurant equipment. There are many options available that provides for the leasing of sinks, refrigerators, commercial ovens, as well as other tools of the trade.
Leasing approvals are based upon qualifying criteria and typically require personal guarantees, especially from new business owners. As any lease requires; the lessee must remit a fixed payment each month for the ‘use of the equipment.’ At the end of the lease term, the lessee will be required to pay a lump sum to gain full ownership.
How to Select the Restaurant Equipment Finance to Meet Your Needs?
A restaurant start-up is difficult to implement; getting financing for the restaurant equipment can be confusing and overwhelming. Buried within the confines of the 3 C’s of credit (Character, Credit & Collateral), you will find the concept of “Collateral.” Collateral (something of value) is offered by a borrower/lessee to mitigate a lender’s risk. These are mighty ‘tall’ lending standards but they can be met. The financing market supports those borrowers coming to the table with inventive ideas, and professional business plans. If one lender rejects your application for financing/leasing restaurant equipment, try another lender that underwrites in accordance with different credit standards. Better yet, check out our website for more of the financing resources needed to make informed credit decisions.
A Word About Factoring
Factoring is one of the oldest, short-term methods of business financing and is often considered the best financing option for existing businesses. The earliest evidence of factoring began in England in 1400’s, and was brought to America by Pilgrims in 1620. The technological breakthroughs (cloud-based applications) in the 21st century have provided an easy to use platform for factoring.
Factoring is a method in which a business sells its future receivables (invoices; monies owed) to a lending institution. The lender is known as the “factor.” Factoring is the easiest and quickest way to raise cash quickly, because the lender totals outstanding receivables at the time of application, and then offers a cash payment on the outstanding balances. The cash received becomes the loan balance. The discount applied to the accounts receivables will be based upon the length of time it will take to be repaid, as well as other criteria.
When operating a restaurant, cash is king. Factoring is a viable option to obtain financing for purchasing restaurant equipment.
The reality is that factoring is the cash-management tool of choice for many different-sized companies; especially those industries where long-awaited receivable are a part of the traditional business cycles.
How Does Factoring Work?
The factor (the lending source) ‘purchases’ the right to collect on a future invoice based upon the fact that they have paid you a discounted cash payment long before the invoice is paid. The discount typically ranges from 2% to 6%.
Restaurant Equipment Finance Qualifications
As a general rule, restaurant equipment lenders require a minimum credit score of 650. The reason lenders offer financing at these credit levels is because the equipment acts as the collateral for the loan, mitigating risk.
Some lenders require the business to be active for at least one year or to generate $50,000 annually.
There are some things one can do to increase one’s chances of qualifying for a restaurant loan:
- -Start with a professional well thought-out business plan
- -Maintain a great credit score, or improve a lower credit score
- -The borrower should be motivated, innovative with refined follow-up skills.
- -The borrower can show a sizable personal investment.
The Take-Away
A business owner in search of financing to establish or grow their restaurant should investigate the options available to help make an educated credit decision. Begin by utilizing the free resources available at LenCred.com or contacting us to speak to one of our helpful Small Business Finance Advisors. The final financing may use a combination of several resources and creative financing methods. Like most financial endeavors, the beginning stages are often confusing and overwhelming. Be patient and seek the advice by financial experts.
Your grandmother’s recipe is waiting!