Should Restaurant Owners Lease Their Equipment?

Restaurant investments have long gestation periods and are capital intensive. Even though investors in this industry are expected to meet 100% of the investment via equity and debt ratio, lack of guaranteed ROI puts them between a rock and a hard place. This is why return-focused investors consider leasing equipment instead of buying. But some are still in a dilemma and don’t know whether leasing equipment is a wise decision. There are hundreds of reasons why restaurant owners should lease equipment. They include:

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Leases Are Easier To Finance than Purchases

Banks and other financial institutions will want to see about three years of financial records before they can extend a capital equipment loan. Most restaurant owners, especially those starting out, might not have these records. The best leasing companies need six to 12 months of credit history before approving an equipment lease. This makes it easy for restaurant establishments to get financing for all the equipment they need to enhance business operations.

Leasing Helps Restaurants Keep Pace with Advances in Technology

To survive the competition in the current business arena, restaurants need to keep up with current trends in the industry. Updating equipment every time can be pricey. By leasing up-to-date equipment, your restaurant can become an industry leader without crippling your working capital or cash flow.

With Leasing, Restaurants Can Afford More Equipment

While you might not afford to buy that pricy and classy equipment for your restaurant, you may be able to lease them. Having better equipment contributes to a better professional image and boosts employees’ morale and productivity. Eventually, leasing the best equipment can contribute to business success.

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Leasing Comes With Balance Sheet Benefits

Restaurant owners may exclude some leased equipment from their balance sheets. This improves financial indicators such as their earnings-to-fixed-assets debt-to-equity ratio and debt-to-equity ratio. It is worth mentioning that accounting rules, however, require the balance sheet of every business to report leased equipment and other assets under certain forms of agreements.

Leasing Improves Cash Flow

One of the most significant benefits of leasing equipment for your restaurant is that it increases cash flow. As long as you work with a reputable, reliable, and professional leasing company, you will not be required to make any down payments, even though you may be required to pay a few bucks as a refundable security deposit. When you acquire loans to finance an equipment purchase, you will have to make a down payment of up to 25% or more. To improve cash flow and maximize the profitability of your restaurant establishment, leasing equipment is one of the most prudent decisions you can make.

Final Thoughts

Without a doubt, restaurant owners should indeed lease equipment to enjoy these benefits and much more. When you choose to lease, however, try to keep the term short – 1-2 years is ideal. Also, try to negotiate a modern equipment substitution clause with your vendor, which allows you to exchange or update equipment when new industry trends emerge. Also, insist on a cancellation clause, which lets you pay an agreed fee to cancel the lease. You can also look for a leasing company that provides you an option to buy the equipment after the lease period expires just in case you wish to purchase it.