Restaurant Equipment Financing

An Entrepreneur’s Guide to Restaurant Equipment Financing

Ezra Cabrera | September 8, 2021


    Key Takeaways

    • Purchasing restaurant equipment can be expensive, and funding it out of your business’s cash reserves can put a strain on your finances..
    • Restaurant equipment financing is easy to qualify for, offers faster funding and even tax deductions.

    Starting and managing a restaurant can be complex and stressful. One of the biggest challenges is acquiring specialized equipment to serve good food and keep your customers happy and safe. From refrigerators and grills to more advanced equipment like kitchen display systems and smart ovens, it’s essential to invest in equipment to ensure high-quality service.

    However, restaurant equipment can be expensive, and funding it out of your business’s cash reserves could strain your cash flow. Business owners have to find a way to support the purchase without breaking the bank.

    The good news is that restaurant equipment financing is available to restaurateurs looking to cover expensive equipment costs. But before heading to the nearest lender and applying, you must understand what a typical restaurant equipment loan entails.

    In this article, we’ll lay out what restaurant equipment financing is, including the terms, pros, and cons, how to apply for one, and the alternative financing options available.

    What is Restaurant Equipment Financing?

    Equipment financing is a form of business financing that helps small businesses obtain the equipment they need. For restaurant businesses, this could be anything from large freezers to smart ovens and refrigerators. Aside from equipment purchase, the proceeds of the loan can also be used towards equipment repair.

    Once you’re approved of the financing, you can get up to 100% of the equipment’s total value, depending on your business’ credentials. You then repay that amount, plus interest, over a specific period of time that’s agreed upon by you and your lender. Usually, the repayment period for equipment financing is based on the equipment’s expected lifespan.

    Equipment financing eases the burden of large purchases by allowing restaurateurs to make smaller payments (for the equipment) over the length of the financing term. This is more practical than shelling out a large sum of money out of the business’ pocket, which could disrupt the company’s cash flow.

    Equipment Financing vs. Equipment Leasing

    Many may get confused between equipment financing and leasing. While both options help businesses obtain the equipment they need without worrying about the impact on their cash flow, they do have major differences. Like anything else, one might be a better choice than the other, depending on your current situation.

    Equipment financing allows you to borrow money to buy a piece of equipment you plan to own indefinitely. This could be refrigerators, stoves, cash registers, freezers, or any tool you plan to use for more than five years. It’s also worth noting that with most equipment loans, you’ll be responsible for the equipment’s insurance and maintenance.

    Equipment leasing is a better option if you’re planning to finance a piece of equipment that gets outdated quickly. At the end of the lease period, you will have the option to renew the lease contract or terminate it for good. You will not have full ownership of the equipment after the lease period ends. Some examples of equipment you can lease are computer hardware and point of sale systems.

    Equipment leasing is also a better option if you cannot afford the financing’s down payment or the monthly repayments for equipment financing.
    If you’re not sure whether financing or leasing is the best way to go, ask yourself these questions:

    • Where do you stand financially?
    • How long do you expect to use the equipment?
    • Will the equipment get outdated quickly?
    • Can you afford the insurance and maintenance?

    Restaurant Equipment Financing Terms

    If you decide to go with equipment financing, it’s important to understand the terms that come with it once you’re approved for the loan.

    At the end of the day, the lenders only care about one thing – whether you can repay the loan or not. You must be able to demonstrate that you can afford the loan repayments and pay the loan off within the repayment period.

    The terms you’ll be eligible for will largely depend on the type of equipment financed and the business’ credentials, including revenue, credit score, and time in business. In order to get excellent terms, you must be able to show that you’re doing well in these areas of your business.

    Here’s a breakdown of what the terms will typically look like if you’re approved for restaurant equipment financing:

    Loan amount

    Eligible businesses can have 80% to 100% of the equipment’s value financed. Although it’s possible to get approved for 100% funding, most lenders will require you to put up at least 20% of the equipment’s full price as a down payment. This is especially true if the business doesn’t have a solid financial and credit track record.

    Interest rate

    Depending on the lender and business’ credentials, the interest rates for restaurant equipment financing can range from 5% to 25% annually. Businesses that demonstrate a healthy revenue and credit behavior usually qualify for equipment financing at lower interest rates.

    Repayment period

    Restaurant equipment loans can have a repayment period of 12 to 60 months. The average financing term is 48 months, but the exact details will vary based on the estimated useful life of the equipment financed. Payments are usually made daily, weekly, or monthly, depending on what you and the lender agree to.

    Restaurant Equipment Financing Terms and Rates Summary

    Loan Amount Rates Repayment Period
    80% to 100% of the equipment’s total value5% to 25% per year12 to 60 months

    Pros and Cons of Restaurant Equipment Financing

    Like other financing options, restaurant equipment financing comes with its share of benefits and drawbacks. It’s always a good practice to review what these are, so you can make informed decisions as you move forward with your application.


    1. No Collateral

    One of the biggest advantages of a restaurant equipment loan is that the equipment financed will act as the collateral for the loan. This works well for businesses that haven’t accumulated enough assets yet, or those that are uncomfortable putting one of their highly-prized assets on the line.

    If for some reason, your business fails to make the required repayments, the lender will simply seize the equipment, liquidate it, and use the proceeds to repay the loan.

    2. Easy to Qualify For

    Traditional lenders usually set a high bar on their loan eligibility. To qualify, you would need a high credit score, strong profit margins, and at least two years of business history. With equipment financing, this isn’t always the case.

    Since the loan itself is self-secured (equipment financed serves as the collateral), it’s easier for many restaurants to qualify – even startups. That said, if you have a low credit score, many alternative lenders will still be willing to extend credit to you.

    3. Faster Funding

    Conventional loans such as term loans and SBA loans are known to have a lengthy and tedious application process. The application for restaurant equipment financing, however, tends to be faster – especially if you’re applying from online lenders.

    Online lenders have an automated system armed with smart algorithms that help lenders assess borrowers’ eligibility for the loan. Once the borrower submits their application, the system immediately sets to work. In most cases, the turnaround time for equipment financing from online lenders is 24 hours. If approved, the restaurant can get funded within 24 to 48 hours. This makes it a perfect financing choice for restaurants in a hurry to obtain financing to purchase essential equipment.

    4. Tax Deductions

    According to Section 179, small- to medium-sized businesses that finance less than $1,000,000 of restaurant equipment are eligible for a tax deduction. So, if the restaurant equipment costs $5,000, you can deduct the entire equipment cost from the company’s net profit during the first year the equipment was used. Assuming that you’re in the 35% tax bracket, you can then get a tax break of approximately $1,750. These tax savings can be highly beneficial for your business. You can reinvest the savings back into your business to further improve your bottom line.

    5. Full ownership of the equipment

    After you’ve paid your balance in full at the end of the repayment period, you’ll have full ownership of the equipment. The lender will transfer the deed’s name to your business so that you can add it to your balance sheets as one of the company’s assets. Plus, since the loan isn’t tied up to the equipment anymore, you won’t have to worry about the lenders seizing the equipment.


    1. Chance of Equipment Going Obsolete

    When you take out equipment financing, you’ll be borrowing money to purchase and own a piece of equipment. That gives you the chance to take full ownership of the equipment at the end of the repayment period – given that you complete the repayments.

    While it can be a good thing, there is also the possibility of the equipment becoming obsolete with time. By the time you’ve paid off the loan, newer versions of the equipment may be released – all with improved functionalities. You may end up taking out another loan to purchase the more recent version of the equipment.

    This is a big reason many businesses choose equipment leasing over equipment financing. With leasing, the company will pay for the equipment within a set time frame. By the end of the lease period, the business can either renew the lease and continue using the equipment or return the equipment and stop paying for the lease.

    2. More Expensive than Traditional Loans

    Equipment financing tends to be more expensive than conventional business loans. In some cases, the rates could go up to 25% or higher, especially if you’re applying from alternative lenders. Plus, the rates will most likely be higher if you have a poor credit background, revenue, and short business history. Lenders do this to compensate for the risk they’re facing by extending credit to a subprime business.

    3. Less Spending Flexibility

    Equipment loans are specialized business financing. In other words, they’re meant to fund equipment purchases. That said, once you’re approved of the funding, you won’t be able to use the proceeds towards other business expenses like working capital, renovations, or commercial real estate investments.

    How to Apply for Restaurant Equipment Financing

    You can apply for restaurant equipment financing through banks, credit unions, and alternative lenders. Banks and credit unions usually offer the best rates. However, to qualify, you need to demonstrate good credit behavior and stable business financials. Newer businesses or businesses with poor credit scores may have better chances of approval if they apply through online lenders as they’re more open to working with high-risk businesses.

    Regardless of the lender you choose to go with, you need to prepare the necessary documents for the application. This could include the following:

    • Driver’s license
    • Information about your business
    • Information about the equipment you want to finance
    • Bank statements
    • Tax returns
    • Balance sheets
    • Profit and loss statements
    • Personal and business credit reports

    Banks are usually more document-intensive. It would be wise to call them ahead of time and ask them what documents they require so you can start collecting them and speed up the application process.

    Online lenders are more likely to require less documentation. Most of the time, they ask the borrowers to submit basic documents like a driver’s license, bank statements, tax returns, balance sheets, and credit reports.

    After applying, all there’s left to do is wait for approval. Traditional lenders usually have the longest turnaround time (a few weeks to months), while online lenders can give you their decision within 24 hours after applying. If you’re in a hurry to get equipment financing, going with online lenders will likely make more sense.

    Alternatives to Restaurant Equipment Financing

    Ultimately, equipment financing is an ideal business loan option if you’re looking to invest in equipment for your restaurant. However, if the lender declines your application or you need more spending flexibility, you might want to consider other lending options.
    Here are the top three alternatives to restaurant equipment financing:

    Traditional Term Loans

    Assuming that you have a stellar credit background and strong financials, you may qualify for a term loan provided by the banks. With a term loan, you can get as much as $5 million in funding, which you can then repay in monthly installments within a period of 10 to 25 years at a fixed interest rate.

    Unlike equipment financing, term loans offer more spending flexibility. Once approved, you can use the loan’s proceeds towards a variety of business initiatives, including:

    • Working capital
    • Equipment purchases
    • Commercial real estate investments
    • Inventory
    • Renovations
    • Business acquisitions
    • Hiring staff
    • Product expansion
    • Debt refinancing

    Again, banks are known to have a lengthy application process. If you apply for a loan from a traditional lender, be prepared to submit a plethora of paperwork, including a business plan and articles of organization on top of the required credit and financial documents. In some cases, the application process could take as long as six months.

    Business Credit Cards

    Business credit cards are often the most overlooked business financing, when in fact, they can be a great short-term financial solution for restaurant businesses. You can use your business credit card to buy equipment and purchase other needed restaurant supplies as well. This could include tables, chairs, and fixtures, among others. Just make sure you don’t exceed the set credit limit.

    Credit cards also give you a chance to earn points and rewards. Every time you use the card to buy something, you will be accruing points, which you can use to claim rewards such as cashback or discounts.
    Many credit card companies may also offer 0% introductory APR. That means you won’t’ have to pay any interest fees on the card within a set period (usually a year). It’s also the easiest one to qualify for, as most credit card companies may only look at the personal credit score of the business owners to determine their eligibility.

    Business Line of Credit

    Like business credit cards, business lines of credit give you a credit line with a set credit limit. You can draw money from it on an as-needed basis and pay only what you use, plus the interest rate. As you pay off your debt, your credit limit will increase, and you can have access to the same funds again if the situation calls for it.

    Like term loans and business credit cards, business lines of credit are prized for their flexibility. Once approved, you can use the funds towards various business expenses, like buying or repairing equipment, inventory reordering, payroll, bridging seasonal cash flow gaps, or creating a safety net for emergencies.

    The interest rates for business lines of credit may vary from lender to lender and depend on your business’s financial and credit standing. Essentially, the better they are, the lower the interest rates will be.

    The Bottom Line

    Applying for restaurant equipment financing can be one of the best investments you make for your business. With one, you won’t have to worry about how you can afford high-tech equipment without breaking the bank. Once you receive the funds, you can immediately set out and use them to purchase the equipment you need.

    Just know that if you apply for equipment financing, you won’t be able to use the funds for other business purposes. So, unless you need the funds exclusively for equipment acquisition, it might be better to consider other business loan options.

    About the Author

    Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.