Whether large or small, restaurants have a tendency to become staples in their local communities. Some towns have restaurants that have operated in the same spot, with the same ownership, for decades, while others have new spots that pop up and start a craze among residents and tourists alike. With such fierce competition, having a consistent capital source and the right financing options can be the difference between success and failure.
There are a variety of sources that restaurants turn to for funding, such as bank loans, investments from partners/angels, credit cards, lines of credit, and alternative lending. Each option comes with its own set of pros and cons, so it's important to research what works best for your restaurant before making any financial decisions.
Understanding all of your options is the only way to ensure you’re making the right decision for your business. Let’s explore the many ways to finance your restaurant and, more importantly, how to choose the right one for your specific circumstances.
Restaurants have a wide variety of equipment needs, from stoves and refrigerators to dishwashers and ovens, and all of it can be expensive. Fortunately, there are financing options available for any piece of restaurant equipment, including
It is important for restaurant owners to do their research and compare different lenders before choosing one — examining fees, payment schedules, interest rates, terms & conditions, and customer service can help you find the best option for your business.
Leasing equipment is nearly identical to leasing a car, where you make structured payments over a set period of time in exchange for the use of the asset. Each payment is given to the vendor as a fee for using the asset, not for ownership of any kind. At the end of the lease, you return the asset to the lender and can no longer use it unless you begin a new contract.
Financing equipment is a contractual agreement with a lending organization to front the purchase of an asset, where the borrower repays the funds through structured payments to the lender. It works similarly to leasing equipment, but you get to keep the asset at the end of the repayment period. Each payment you make to the lender works toward the total cost of the asset, and you can write off interest payments on your tax return.
Leasing equipment is most beneficial if you won’t need the asset long term, like short, one-off projects or contracts. However, if you plan to continue leveraging the asset in your business, it might be more advantageous to finance the equipment and pay over time.
Restaurant owners have to navigate a variety of options when investing in new equipment. Purchasing necessary items up-front can be cost-prohibitive for many, so alternative financing solutions may need to be considered. Here are a few of the more common options.
Term loans are lump sum payments of capital that you repay to a lender over a set period of time. They’re most beneficial when you know exactly how much an asset, project, or other expense will cost, but you can also secure a term loan for working capital purposes if need be.
Term loans are great for restaurant equipment financing because you can secure the capital you need to afford an asset and pay on a more manageable schedule. However, some lenders require collateral as a method of securing the financing, and you can’t always use the asset you’re seeking to purchase.
Can be short-term or long-term - less than one year or up to 25 years
Starting at the prime rate
One-off purchases or investments, when you know exactly how much a project will cost, long-term financing needs
Equipment financing is, as you can assume, a financing solution designed specifically for asset purchases like restaurant equipment. It’s what most people will use to finance restaurant equipment.
Once you determine the equipment you want to buy, you find an equipment financing lender who fronts the cost of the asset at the point of sale. Then, you repay the cost to the lender within a set time frame, with your payments working toward the principal and interest.
Unlike term loans, the equipment you’re looking to purchase can act as collateral for the financing. Interest rates vary depending on the lender you’re working with and the financial background of your business, but you can expect to receive a rate within the 2% and 20% range.
Medium length, but it depends on your needs - two to ten years on average
Between 2% and 20%
Breaking down sizeable equipment purchases into manageable payments
A business line of credit is a flexible capital source you can draw funds from on an as-needed basis. You only pay interest on the amount you’ve drawn, and if your line is revolving, you can pull the same funds again after you’ve repaid the borrowed amount. You can purchase restaurant equipment, cover operational expenses, stock up on inventory, or start a new marketing campaign with the money—it’s up to you.
However, although you can use the funds from your line of credit for equipment purchases, it’s usually not recommended. Despite the increased flexibility of this financing option, most lenders won’t offer high credit limits unless you can display strong financial information. Interest rates are generally on the higher end of the spectrum, too, so you can potentially save money by leveraging a different financing option to finance your restaurant equipment.
Starting at the prime rate
Ongoing purchases or investments, flexibility, when you don’t know the exact cost of a project, long-term financing
Revenue-based financing leverages your business’s profitability in exchange for short term capital. It’s essentially an advance on your future sales that you sacrifice a portion of for the lender’s service.
This type of financing is most advantageous for seasonal restaurants with cyclical revenue cycles. If you see most of your revenue during a specific time of year and need to make a sizeable purchase in your off-season, you can leverage revenue-based financing to yield the capital you need to purchase, repair, or replace equipment.
Medium length, but it depends on your needs - two to ten years on average
6% to 30%
Short to medium-length projects, highly profitable businesses, when you know exactly how much a project will cost, long-term financing needs
The honest answer? It depends on your business, situation, and goals. Let’s break down some of the things you should consider when choosing between the different ways to finance your restaurant equipment.
The cost of your capital is what typically what most people are concerned about, but interest rates will vary depending on your business’s financial background and the lender you’re working with, amongst other things. On average, equipment financing comes with the highest interest rates of the bunch, with business lines of credit and revenue-based financing following second and third. But, again, the interest rate you’ll receive is influenced by many factors.
Think of it like this: Interest rates are higher on more accessible financing solutions. If you can display strong financial information and a high credit score, you can secure better terms than a business that can’t. You don’t want to pay more interest than you have to, of course, but you should also consider the long-term benefits of your investment. Will the investment yield revenue gains that offset the cost of your financing? If so, then it might be worthwhile to explore the opportunity and see what your business could look like after you’ve grown.
Longer terms give you more time to pay, whereas a shorter repayment period could save you money in interest payments. In most cases, you’ll have to negotiate repayment terms with your lender, but if you’re searching for the longest terms, you might want to consider using the funds from a term loan for your restaurant purchase.
Some entrepreneurs plan to purchase multiple pieces of equipment in a short period of time. If you know the exact cost of all the equipment you want to purchase, you might want to leverage a more substantial type of financing, like a term loan, to buy all of the equipment in one fell swoop.
However, if you’d rather buy equipment on your own schedule and have a capital source to assist with the purchases, you might find more benefit in a business line of credit or financing with a longer repayment period.
Once you’ve chosen the type of financing you’ll leverage to purchase your restaurant equipment, it’s time to start preparing for the application process.
First, you’ll need to research lenders and their offered programs. There are specialized lenders that only work with specific industries or offer one type of financing (i.e., equipment financing organizations) and jack-of-all-trades lenders that work with many different businesses. For the best results, make sure to research all the lenders available to you and highlight those that jump out as frontrunners.
Next, you’ll need to gather all your business documents, including your business bank statements, credit score information, revenue projections, and other relevant documents. By proactively preparing for this stage, you can avoid wasting time with back-and-forth documentation requests.
Lastly, you’ll fill out applications with each of the lenders you’ve chosen. You may have an abundance of options, and that’s great! You want as many options as you can as you go through your search, but make sure to allot for the time you’ll spend filling out applications and waiting for decisions.
If you’re looking to streamline your restaurant equipment financing, consider working with National Business Capital—a FinTech marketplace of over 75 lenders. With one application, you receive multiple competitive offers that are custom-tailored to your specific needs. Not only does this save you time and effort, but it also makes it much easier to compare offers against each other and find the right lender for your business.
One last thing: Financing equipment can potentially qualify you for tax deductions, like Section 179. This benefit allows you to deduct nearly the full value of your equipment in the current tax year rather than deducting a percentage over time. However, you’ll need to use the equipment within the same tax period to qualify.
That means you can purchase a $100,000 walk-in freezer unit and deduct almost all of it on the current year’s tax return. Most entrepreneurs will leverage Section 179 at the end of the year to save money on taxes, but you can do this at any point over the year.
The tax advantages are one of the main reasons to finance equipment instead of leasing it. While the monthly payments might be lower in a leasing agreement, the tax benefits and ability to keep the equipment after the period concludes can outweigh the cost of your capital.
There’s no one-size-fits-all approach to business financing. With our 75+ lender marketplace, our expert Business Finance Advisors can streamline the process to hours or days, not weeks or months, like when applying to lenders one by one. We make financing restaurant equipment financing look easy, so you can get back to what matters most—your business.
Complete our digital application to review the offers we have available for you!
Yes! Whether the equipment is brand new or a few years old, you can use a business loan or another type of financing to break down the cost into a more manageable schedule. Used equipment, obviously, has a shortened lifetime compared to new equipment, so make sure to have the equipment you’re looking to purchase evaluated before you sign on the dotted line.
You’ll want to only use your restaurant equipment for the purpose outlined by the manufacturer and perform routine maintenance on a set schedule. If you notice any performance issues or noticeable wear and tear, try and discontinue its use immediately until you can remedy the situation. It might feel unnecessary, especially with newer equipment, but proactive steps at the beginning can extend its usefulness far beyond its expected lifetime.
Most lenders require a 625+ credit score, but National Business Capital can help you secure equipment financing with no credit score requirements. If you generate more than $120,000 in annual revenue and have been in business for 1+ year, their team can help you purchase the equipment your business needs to grow.
It can, but it shouldn’t. Some lenders perform “hard credit checks” when determining your creditworthiness, which damages your score every time it’s done. For the sake of your credit score, work with an organization that performs “soft credit checks,” like National Business Capital.
Don’t worry; A denied application isn’t the end of the road.
Applications are denied for many different reasons. Maybe the lender felt you didn’t meet their eligibility requirements, or perhaps there was an error somewhere in your application that caused AI to spit out a denial. In either case, filling out numerous applications gives you breathing room if one of them comes back as a denial.
As the old adage goes, “don’t put all your eggs in one basket.” Make sure to send out as many applications as you have time to complete to ensure you can grow your business without having to wait longer than you have to.
National Business Capital helps entrepreneurs secure quick and fair financing to save time and cultivate sustainable growth.
Our stress-free online platform is designed for simplicity and speed, helping business owners go from application to approval in a matter of hours. And while we remain a leader in the Fintech industry, our clients agree it’s our personalized service and award-winning team that sets us apart.
From SBA loans to lines of credit, to equipment financing, and more, business owners can access all the different financing programs available to them in one place. Through our streamlined process, we have helped clients secure $2 billion in financing since 2007, and, more importantly, we’ve helped entrepreneurs save a tremendous amount of time and grow faster.
Lauren is the Marketing Manager at Nationalbusinesscapital.com. She has 7 years of professional experience with a focus on small business marketing and finance. She previously worked as a senior business analyst for B2B SaaS, Sky IT Group. She has covered topics including, business financing, startups, retail, taxes & regulations, etc. Her work has been featured by USA Today, Google & Yahoo News. Lauren holds a B.A. from the Fashion Institute of Technology’s (FIT) School of Business.