Opening and running a restaurant requires heavy investments. From monthly overhead costs like rent and utilities to major expenses like investments in the kitchen, many restaurant owners turn to restaurant equipment financing options. 

When you need to get your hands on new, top-of-the-line (or even just affordable) kitchen equipment, an equipment financing agreement with a lender works as a responsible and attainable form of funding. 

With equipment financing, a lender agrees to extend you the exact amount needed to purchase your needed piece of equipment—a used commercial fridge, a new grill, a kitchen display system, for example—which you pay back over time plus interest. It’s similar to a car loan, but for your business’ assets. 

Why use equipment financing for your restaurant, rather than another form of business financing or by coming up with the funds on your own? Here are seven reasons. 

Restaurant Equipment Financing

1. You don’t have the cash on hand for an upgrade

A common reason for buying a new piece of equipment is, of course, that your old one breaks. But if you weren’t expecting to shell out thousands of dollars this week for a new and critical piece of equipment, like a fridge or grill, you may not have the cash on hand necessary for such a purchase. 

If you absolutely need a new piece of equipment and aren’t liquid enough to buy it yourself, equipment financing is a perfect solution. 

2. You’re trying to keep cash flow consistent

Cash flow mismanagement is one of the top reasons why small businesses fail. Even successful businesses can fall into this trap if they put up too much money before they can recoup their investments. 

In order to avoid failure by cash flow issues, ensure that your regular expenses are as consistent and predictable as possible. One way to do that is to take out equipment financing for your next equipment purchase and pay it off over many months in regular installments, rather than all at once. Because if you choose the latter option and another unexpected expense hits, you could be in trouble. 

3. You don’t have (or want to put up) additional collateral

Restaurant equipment financing is a “self-secured” loan. That means the equipment that you’re financing acts as its own collateral. If for some reason you default on your loan payments, the lender seizes the equipment and sells it for cash to repay your loan. 

Therefore, if you’re seeking financing, but not willing to put up additional collateral and risk losing other assets, equipment financing is the move. 

Financing isn’t just for kitchen equipment. Learn more about 0% financing for your FOH technology.

4. You want to own your equipment outright

In many ways, restaurant equipment leasing and restaurant equipment financing are similar. With either option, you’ll avoid a large one-time investment and instead spread your spending out over many months. In fact, if you’re seeking a temporary solution, leasing equipment is the best option. 

But if you want to own your equipment outright after making payments on it, you’ll want to take the path to ownership and finance your purchase. 

5. You don’t need an outstanding credit score to qualify

For most business financing options, you’ll need excellent personal and business credit scores in order to qualify for the most affordable products. For example, qualified SBA loan applicants typically have a personal credit score of at least 680. 

Because restaurant equipment financing loans are self-secured, qualifications for this kind of funding aren’t quite as high. Of course, the better your financials, the better deal you’ll get regarding your interest rate and repayment terms—but don’t worry if your credit history is less than stellar.  

Restaurant Equipment Financing

6. You won’t pay extra for what you don’t need

As mentioned above, an equipment financing loan is for the exact amount you’d need to purchase your equipment. A business loan, on the other hand, might be for more money than you want, and short-term loans often have higher interest rates than most other financing products. 

7. You want to focus on other investments

Running a restaurant requires balancing many different things at once. You need to make sure the equipment is running optimally, of course, but also that the front of the house is running smoothly, you’re turning over tables, bringing in new customers, and encouraging old ones to stick around, among hundreds of other responsibilities. All of these tasks require spending—on hiring, operations, and marketing, respectively—and you may want to focus your liquid capital on these areas. 

Therefore, if a sudden equipment need arises, you can finance it rather than adding it to the list of things that you want to tie up your liquidity in. 

Equipment financing is just one of many financing options available to restaurant owners and managers—but if you fall into one of the categories above, it’s perhaps the most effective. Talk to your team, including your accountant and/or lawyer, to see whether this option makes the most sense for you right now from a financial and logistical perspective.  

Upserve's restaurant point of sale at a bar

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Eric Goldschein is a staff writer at Fundera, a marketplace for small business financial solutions. He covers entrepreneurship, small business trends, finance, and marketing.