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. While purchasing restaurant equipment outright is a common route, equipment leasing offers small business owners several advantages. Leasing equipment for restaurant owners is like 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, return it, or purchase the equipment.
Whether it’s efficiency, food quality, ambiance, or a cool new 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:
- 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 allows you to pay a manageable monthly fee rather than a hefty upfront sum. It’s an excellent option for new businesses that need to conserve capital during the initial stages.
- Lease payments are typically tax-deductible as business operating expenses. Unlike purchasing, where you pay taxes upfront, leasing spreads the tax burden across monthly payments. Keep in mind that you won’t be able to claim depreciation on the leased item, but the overall tax benefits can offset the cost.
- 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 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. Plus, you don’t have to worry about the hassles of selling old equipment when you’re ready to upgrade.
- 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.
- Leasing doesn’t always require excellent credit. If your credit history is less than perfect, leasing can still be an option. This flexibility is especially beneficial for small businesses just starting out.
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.
- An operating lease is a long-term equipment rental agreement that allows your business to use the assets for a set period. 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 leasing company could be responsible for maintenance and repairs, depending on your terms. This is a good option 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 main difference between equipment leasing and equipment loans 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.
Capital lease payments are deductible under Section 179 of the IRS tax code, 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 a 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, you’re well aware that the heart of your business lies in the kitchen. From ovens and refrigerators to coffee machines and dishwashers, having the right equipment is essential in order to deliver high-quality food and 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.
