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The Complete Guide to Restaurant Equipment Financing

Amanda McNamara, Christine Georghiou, and Paige MaddenAuthor

Restaurant equipment financing encompasses the various options your restaurant could have available when purchasing major pieces of equipment, such as a flat top range, walk-in refrigerator, or commercial mixer. All in all, getting new or replacement restaurant equipment can bring your tab from hundreds of dollars into the tens of thousands, depending on how big your shopping list is. Some good news is that IRS Section 179, which allows you to deduct the full purchase price of qualified depreciable assets (such as restaurant equipment), whether you purchased your equipment with cash on hand or financing. For 2022, it’s up to a $1,080,000 deduction limit with a spending cap of $2,700,000.

You might have already decided that leasing restaurant equipment isn’t right for your business because you want to own your equipment outright. You’ve also considered purchasing the equipment on your business credit card, but maybe you’ve got a lot of payables due this month. With short term restaurant working capital needs, payroll, and other day-to-day expenses to budget for, what’s the best way to buy restaurant equipment without diverting all of your hard-earned resources? There are a few popular options out there in the market, each with their own set of pros and cons.

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Your Options for Restaurant Equipment Financing

Get a “traditional” restaurant business loan

This is where almost every restaurant owner starts their search to get restaurant equipment financing. We take an in-depth look at the world of restaurant financing and loans in this On The Line article, but getting a restaurant loan isn’t always right for every restaurant or situation. Let’s say you want to get a nice new single deck convection oven that’ll cost about $2,500; this amount might not be worth the trouble of getting a credit check and negotiating rates with a bank. You might even need to shop around — not just to find the best rate, but because you might not meet a minimum loan amount for some traditional lenders. However, smaller loan amounts may work in your favor if you have a consistent business or a strong relationship with a lender in your community.

Manufacturer financing

Some manufacturers, such as Hobart, offer financing — generally by partnering with a financial institution or other lender, — to help customers get financing for their kitchen equipment needs.  

Manufacturer financing may offer less flexibility for financing terms if they have a single lending partner. However, financing equipment directly through a manufacturer may help streamline the overall purchasing process by combining it with the financing process. Just as with traditional financing, manufacturer-partner financing will generally require a credit check and a personal guarantee.

If you’re purchasing equipment from a manufacturer’s reseller instead, they might offer a reseller financing option.

Lease-to-own

Rather than pursuing an ongoing rental for your restaurant equipment, lease-to-own agreements provide a blend between traditional financing and leasing or renting. For a lease-to-own contract, you’ll have the opportunity to buy out the equipment you’re leasing, so your monthly payments will essentially go toward a purchase as opposed to a traditional rental. However, you won’t actually own the equipment unless you purchase the equipment you’re leasing before your contract ends.

Some lessors attract customers with “$1 equipment purchase” promotions, but it’s important to check the terms of such contracts before taking the plunge. The Federal Trade Commission’s website offers some guidance about lease-to-own programs and notes that lease-to-own laws vary from state to state.

Buy Now Pay Later 

Buy Now Pay Later (BNPL) is a rapidly growing alternative to traditional financing that has been picking up steam, particularly with consumer products. BNPL enables consumers to pay in installments over time, typically with no interest if the item is paid off within a specific time period. Some restaurant equipment resellers have begun to partner with leading BNPL solution providers such as Klarna, Affirm, and AfterPay, and could be a viable option for your restaurant. While many BNPL offerings don’t require a credit check, BNPL can still negatively affect your credit score if your payments aren’t made on time. BNPL terms vary, so you’ll have to do some research on your own to make sure potential interest payments are reasonable.

Toast Capital

Toast Capital provides eligible Toast customers with access to loans from $5K to $300K that can be used for any restaurant need. Toast Capital Loans have one fixed cost with automated repayment that flexes with sales* – with no compounding interest and no personal guarantees. Once you’ve been approved and signed your Toast Capital Loan agreement, you can expect funds to be sent to your bank account in as soon as one business day**.

Toast Capital Loans are issued by WebBank. Loans are subject to credit approval and may not be available to borrowers in certain jurisdictions. WebBank reserves the right to change or discontinue this program without notice.

*Toast Capital Loans offer different target repayment terms ranging from 90 days to 360 days, depending on eligibility. The maximum repayment term is 60 days following the end of the target repayment term. Any outstanding balance due at the end of the maximum term will be collected automatically via ACH.

**Funds are typically disbursed within 1-2 business days after signing your credit agreement.

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How to Apply for Restaurant Equipment Financing

The preparation and application process for these popular financing options can vary from provider to provider. However, you can take a few common steps to help prepare to apply for financing:

  • Decide on the financing routes that work best for you depending on the equipment you need, but try to narrow them down because multiple applications could damage your credit score.

  • Get your business documents and financial statements ready for the application. If you’re going through a traditional loan application, you might need to have a quote for your equipment handy so they know exactly what you want to use your financing for. You may also need to have your business plan ready in case your lenders want to get a better sense of how you’re planning to pay back your loan, especially if you haven’t been in business very long.

  • Start applying to your best option! If needed, apply through other lenders or check other resellers for better deals, depending on the routes you chose.

The Bottom Line

Securing restaurant equipment financing can be a stressful process — all of the pros, cons, and variables of each option can be enough to leave your head spinning with a restaurant that’s still left to be managed. Though it takes some time, by researching some different financing options and equipment alternatives, you’ll be able to make an informed decision without being backed into a corner with less-than-ideal financing terms. You may even be able to establish a great relationship with a local bank, manufacturer, or alternative lender that can help speed up the process for future restaurant equipment financing needs.

All restaurant started out as a dream...

Securing capital for an important project can be scary, but by taking the time to do your research and arming yourself with the right tools and resources, you can make a great investment in the future of your restaurant.

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DISCLAIMER: This information is provided for general informational purposes only, and publication does not constitute an endorsement. Toast does not warrant the accuracy or completeness of any information, text, graphics, links, or other items contained within this content. Toast does not guarantee you will achieve any specific results if you follow any advice herein. It may be advisable for you to consult with a professional such as a lawyer, accountant, or business advisor for advice specific to your situation.