When to Lease Restaurant Equipment

When Lease Restaurant Equipment

There’s really nothing sexier than showing off that sweet new ice maker you leased on Instagram, right? So it’s totally worth leasing just so maybe you can be the most liked picture on #icemakersofinstagram.

Yeah, it doesn’t really work like that. And unlike leased cars small business owners lease restaurant equipment because they have to, not because they want to show off. When faced with mounting startup costs, big ticket items like commercial ovens, POS systems, and, yes, ice makers, can be tough to buy with cash.  Which means they have to find another way to pay for it, and many turn to leasing.

What Should I Consider Before Leasing?

Most leasing companies won’t lease you equipment valued at less than $3,000, so start there. But beyond that you’ll want to think about how much financial sense it makes.

First, when looking at your cash flow budget, see if you have enough actual money coming in each month to cover the expected lease payment.

Secondly, think about how long you’re planning to use the equipment. Items that you don’t plan to replace for years, like hot water heaters or brick ovens, make much more sense to purchase. But for items that you only plan to use for a few years leasing is always the smarter play. Along those lines, technology-driven equipment, like POS systems, stereo equipment, or dishwashers are also smarter to lease so they can be replaced as new technology becomes available.

Also, be sure not to get carried away and over-lease. Even if it falls within your cash flow budget to lease that pizza-baking oven that only exists on remote hillsides in Italy, it might not give you enough of a competitive advantage to be worth the cost.

What Types of Items Do Restaurants Lease?

Here are a few of the most popular items leased by restaurants, and why they might be a good idea to lease.

POS Systems – These can be very expensive, and frequently are outdated a week after they’re installed. They need constant updating, especially as enhanced security features are put into credit cards, and people develop alternative methods of payment.

Refrigerators – Walk in refrigerators and freezers are actually far cheaper on a per-square-foot basis than small ones, so installing these is a huge cost savings in the long run. But they can be pricey, and while you might not replace them often, a lease can make sense if the payment is cheaper. And since used refrigerators don’t have good resale value, many leasing companies will give buyout options for almost nothing.

Commercial ovens – if you plan on any kind of high-volume service, commercial ovens are a must. They allow for you to cook more, faster, in a more energy-efficient manner with the latest technology. They’re a big ticket item that are constantly being updated, and therefore a smart thing to lease.

Commercial Fryers – For much the same reason it’s wise to lease a commercial oven, you’ll want to lease a commercial fryer. They are far more efficient and have increased capacity, but are also items you’ll want to replace frequently.

Ice Makers – I wasn’t joking before…ice makers use a ton of energy and as efficiency technology advances, newer models are big cost savers.

Dishwashers – Dishwashers become outdated almost as fast as POS systems, with new cleaning methods, chemicals, and water/energy-efficient models flooding the market every year. The added bonus of leasing a dishwasher is that often maintenance and chemicals are included in the cost.

Display Cases – If you want to offer things like grab-and-go lunches, chilled sandwiches, or fruit, chilled display cases are a great asset. Though they’re not a product that needs updating, any time you redesign your restaurant you may need to change their look. Because they can be a short term purchase, many restaurants opt to lease them.

What Are the Other Advantages, and Disadvantages, of Leasing Restaurant Equipment?

Aside from potential cost savings and allowing flexibility to upgrade, operational leases can offer some big tax advantages too. The money you spend to lease the equipment is not categorized as capital, rather it’s a rent expense. This means it’s not considered an asset or liability, and also qualifies for tax incentives. Also, depending on the lease, you may be able to deduct the payments as a business expense under Section 179 qualified financing. Though there have been recent reductions in how much a business can deduct.

Of course, leasing has drawbacks. The APR for leases is almost always higher than it is for financed purchases, meaning your monthly payment might be higher depending on how much money you put down. Also, because new restaurants aren’t exactly a guaranteed investment for the lessors, new restaurants may find their interest rates exceptionally high. You can find a fantastic infographic about it here, but expect to pay in the neighborhood of $1,650 a month for every $50,000 financed if you’re new to the industry.

If those terms make you a little uncomfortable, take a look at getting a small business loan. Often times the interest rate on those can be considerably lower than with leasing companies, allowing you to finance your new equipment at big savings. BFS Capital is a perfect resource when you’re looking to either buy new equipment or upgrade the old stuff, and always happy to make it an easier process for everyone.

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Matt Meltzer

Matt Meltzer is a professor of business communication at the University of Miami. He is a veteran of the United States Marine Corps and holds a bachelors degree in business administration from UM, as well as a Masters of Mass Communication from the University of Florida.