When you started your restaurant, you may not have been able to afford all the equipment on your wish list. The top-of-the-line freezers, specialty ovens and fancy cocktail shakers would have to wait. But now that you’ve developed a clientele and some working capital, restaurant equipment leasing can help you reconsider the items that will make your restaurant stand out. Leasing equipment for restaurant owners is similar to leasing a car for drivers. You “rent” the items from a vendor or leasing company for a set amount of time. At the end of the lease, you either renew the lease or return or purchase the equipment.
Whether it’s efficiency, food quality, ambiance or a new cool factor you’re trying to achieve, leasing restaurant equipment vs. buying it helps you acquire what you need without investing a lot of money upfront.
Why Should Restaurants Lease Equipment?
Leasing equipment offers you several advantages. First, leasing usually has a lower monthly payment than an equipment loan, and a down payment or collateral isn’t usually required. That means you can put your cash to use in other areas of your business, such as hiring more staff or even expanding to a second location. You don’t put your business or personal assets at risk.
Leasing equipment for restaurant operations also offers a fixed rate and payment, instead of a payment that can fluctuate with an adjustable-rate loan. That type of payment helps you plan your budget instead of scrambling to cover a larger-than-normal sum.
Another benefit: You’ll always have current equipment and can keep up with the latest restaurant industry trends. Customers want to try out the hottest new menu items as well as restaurants that offer updated ambiance. Purchasing equipment each time you want to try something new can be expensive and inefficient. Leases are a great way to acquire the equipment you may not plan to keep long term.
Some types of leases also don’t require you to pay for equipment maintenance or repairs, as some leasing companies cover those fees as part of the arrangement. As a busy restaurateur, that means one less thing to worry about. By changing out your equipment every year or two, your items will always be fully operational and just like new. You can also choose higher-quality items or more pieces than you might have been able to afford by purchasing or financing them. Plus, you don’t have to worry about the hassles of selling old equipment when you’re ready to upgrade.
Finally, leasing allows you to try out equipment in a test phase. If you use the latest trendy tool to make a new menu item that doesn’t positively impact your sales, you can return the tool at the end of your lease. You’re not locked into keeping it and trying to make it work.
Two Types of Equipment Leases
Lease arrangements come in two types: capital and operating. A capital lease is a rent-to-own arrangement where you intend to buy the equipment at the end of the lease. With this type of lease, you’re required to handle repairs and maintenance, and payments are generally higher because you’re paying off the equipment. A capital lease is a good choice if you intend to keep the equipment but don’t have the funds for a large down payment.
The second type is an operating lease, which is a long-term equipment rental agreement that allows your business to use the asset for a set period of time. At the end of the lease, you can buy the item if you wish, but you can also return it. An operating lease offers the lowest monthly payments. In addition, the lessor could be responsible for maintenance and repairs, depending on your terms. This is a good type of lease if you like to frequently upgrade your equipment or want to try out a new item before committing to its purchase. For more information about these differences, check out our guide on equipment leasing basics.
How Leasing Compares to a Loan
Before you choose your preferred financing method, it’s important to understand the differences between leasing restaurant equipment vs. buying it with restaurant business loans. The primary difference is ownership. With a restaurant equipment lease, you don’t own the equipment — your lender does — and you are paying for its use.
The equipment leasing application process is also easier, often requiring less paperwork. With a lease, you don’t need to come up with a down payment or offer collateral, unlike some equipment loans. If you miss a loan payment, you put your business at higher risk than with a lease arrangement.
Equipment leasing and purchasing can both offer tax incentives. Under Section 179 of the IRS tax code, capital lease payments are deductible, with a maximum annual amount set at $1 million. The Section 179 tax deduction allows you to take an immediate and full tax break when acquiring assets, instead of having to divide the cost over the asset’s expected useful life. Operating leases do not qualify unless you decide to purchase the equipment at the end of the term. Be sure to check with your accountant or financial adviser to confirm your eligibility.
When you’re exploring your options, it’s important to know that sometimes restaurant equipment financing is the best action. If you have a down payment ready and the restaurant equipment is durable, such as a commercial oven or stove, you might be better off with an equipment loan instead of a lease. This method can often reduce your monthly payment and put you on the path to ownership.
Starting Your Restaurant Equipment Lease
As a restaurant owner, your priority is enticing diners with your mouthwatering items and providing stellar customer service. Leasing equipment for restaurant operations offers you the most flexibility by allowing you to grow your restaurant while holding on to more of your working capital. Start evaluating your business financing options, find a vendor with the equipment you need, and your equipment leasing company can handle the rest.