Are you opening a restaurant and need to add equipment? Or are you a current restaurant owner looking to upgrade or replace your equipment?
Either way, one of the biggest investments you’ll make in your restaurant is found in your equipment. So, how do you pay for these expensive items? While there are several ways to pay for your new equipment, we’re going to look at financing.
Here are seven must-know restaurant equipment financing tips.
#1: Prepare and Organize All Your Financial Info
Before you can meet with anyone or apply for equipment financing, you need to have all of your financial documents at the ready.
This means preparing your income statements, profit and loss statements, and your balance sheets. These should be accurate and include several years’ worth of information.
#2: Know Your Credit Score
In addition, check your credit score. Your lender will consider both your personal credit score and that of your business. They do this to decide how much of a risk you are before offering you credit to finance your restaurant equipment.
Some restaurant equipment financing companies only approve people who have good to excellent credit. If your credit is currently subpar, make a plan to improve it so when you’re ready for the financing you have a better chance at getting it.
It’s a good idea to also be aware of your debt ratio so you can be prepared to talk to your lender.
Finally, some lenders want to see that your restaurant has been in business for a certain period of time. So, before you apply for financing with a company, know their requirements.
If you pay your bills on time, have good credit, and can prove need, you have a good shot at obtaining financing. (tweet this)
#3: Plan Ahead
If you already own a restaurant, and you need to replace or buy new equipment, it’s a good idea to be prepared well in advance.
The last thing you want is to be caught needing new equipment and not having a plan in place.
By being prepared, you can estimate when you might need to replace certain items. Make a spreadsheet list of all of your current equipment, the age, expected life span, and when you expect to need to replace it.
This way you won’t be stuck paying more than you need to because you desperately need to replace an item.
Consider replacing items before they have reached their expiration date and begin to fail. This can help you plan for saving a little for a down payment (if it’s required) as well. This way you don’t have to finance the entire cost and incur unnecessary interest payments.
#4: Research Lenders
Shop around from various restaurant equipment financing vendors.
The goal is to find the lowest interest rate and the most agreeable payment terms to you.
For example, you might prefer a shorter loan time frame, or you may need a longer time frame.
You can try to negotiate with your lenders as well. Remember, it never hurts to ask.
#5: Consider Used Equipment
When considering restaurant equipment financing, don’t forget to look at the prices of used versus new equipment.
Because these items are often major capital expense, they are expensive, and you want to look for ways to save money when you can.
Oftentimes the used equipment is of great quality. Perhaps it was only used for a short time, so the quality is exceptional. This will help you save money in the long term.
If you’re buying used equipment, consider the following:
Inspect the used equipment very carefully. If it’s cosmetic, and back of house, it’s not necessarily a problem. If you’re using it in the front of the house, make sure you can repair any cosmetic issues. As far as how it works, consider having an expert come in and inspect the equipment if you don’t know what to look for.
Ask for a copy of the maintenance records. This way you can see all the repairs that have been made as well as any regular maintenance. If the seller doesn’t have these, you might want to walk away from the purchase.
Get all the warranty information from the previous owner before purchasing. Depending on who you purchase it from, you may be able to get a warranty for 60-90 days. If there is still existing warranty left on the equipment, it may be transferable to you. The goal is simple to learn about any warranties and obtain the paperwork.
#6: Research Your Vendors
If you’re buying new restaurant equipment and financing it, research the equipment vendors.
Check their online reviews, ask other restaurant owners about particular vendors, and check prices from their competitors.
Your best bet is to deal with reputable vendors only. They usually have better warranties, and certainly have better customer service. (tweet this)
#7: Don’t Overspend
Just because you got financing for your restaurant equipment purchase doesn’t mean you should overspend.
Make sure that you can actually afford the loan you’re approved for. Some restaurant owners may take on too much debt when they don’t really have to.
So, once you’re approved for financing, be sure of what your budget allows. Just because you got $100,000 in financing doesn’t mean you have to or should spend it. Have a budget and stick with it.
There are many reasons to apply for restaurant equipment financing. They include:
Depending on the lender, you generally self-secure the loan. The restaurant equipment is the collateral, so if you default on the loan, the lender takes your equipment as repayment.
Generally, these types of loans aren’t as strict as perhaps a home loan or a car loan. Equipment financing is secured by the equipment, so more people will be approved for this type of loan.
Most restaurant owners only take a loan for exactly what they need.
The turn around from financing to purchase is usually fairly quick.
Finally, remember that going into debt is always a risk. Before you take on restaurant equipment financing, be sure that you can afford the payments.
If you can, you’re on your way to improving your restaurant and your bottom line. And, once the loan is paid off, you’ll improve your credit score.