What You Need to Know Before Leasing Kitchen Equipment

Are you opening a restaurant and need new kitchen equipment but worried about the high costs of purchasing? One challenge many restaurant owners face is how to equip their kitchen without breaking the bank. After all, your oven isn’t just an oven; it’s the heart of your business. So, should you splurge and buy it outright or consider the alternative of leasing?

If leasing piques your interest, you’re in the right place. From the potential savings and flexibility of leasing to understanding the potential drawbacks, we’ve got you covered. We’ll also break down the debate between leasing vs. buying, enabling you to make an informed decision that aligns with your business needs. So, let’s get started!

The perks of leasing: advantages of leasing kitchen equipment

Opening a restaurant can be exciting, but the high cost of kitchen equipment can certainly bring down the mood. This is where leasing comes in, and here’s why:

1. Easy on the pockets: Leasing allows you to use necessary equipment without a hefty upfront payment. You can make manageable monthly payments even if you’re short on cash or don’t have perfect credit.

2. Potential tax benefits: With leasing, your monthly payments often double as business expenses, which may be tax-deductible. Unlike purchasing equipment where you might pay taxes all at once, leasing spreads out these costs. However, you can’t claim depreciation on leased items.
3. Frees up room in the budget: Choosing to lease removes kitchen equipment from the total lending budget, which allows you to allocate more funds to other categories. This can also increase your chances of getting approved for lending.
4. A flexible option for short-term needs: Not all businesses are in for the long haul. For pop-ups or temporary restaurants, leasing can be a cost-effective solution. Additionally, if you’re not quite sure of your long-term equipment needs, you can start with a lease and when the lease ends, you can decide whether to return or upgrade the equipment. Just be sure to review the lease agreement for end-of-term procedures.
5. From Leasing to Owning: At the end of many lease agreements, there’s often an opportunity to purchase the leased equipment. This is ideal for items you plan on keeping long-term but couldn’t initially afford to buy outright.

The flip side: disadvantages of leasing kitchen equipment

It’s also essential to understand that every choice has its pros and cons. Just as leasing kitchen equipment has its benefits, there are potential drawbacks to consider as well. Here’s what you need to know:

1. No equity accumulation: Since you don’t own the leased equipment, you won’t build equity in it. In other words, if the equipment retains value at the end of the lease, you can’t benefit from that value as you would if you owned and sold the equipment. For example, if you purchase a new dishwasher for your restaurant and want to sell it, you can use that equity to buy a new unit. For many business owners, this is why buying is more appealing than leasing.
2. Limited availability: Not everything you need for your restaurant will be available to lease. While major appliances might be up for grabs, other essentials like dinnerware, daily-use supplies, or furniture may not be available. If you have some capital, purchasing these items might be more practical.

3. Potential high interest rates: Leasing can come with interest, especially if you have a lower credit score. This interest increases the overall cost of equipment over time, unlike direct purchasing which doesn’t involve interest.
4. Early termination fees: Leasing agreements may have penalties for early termination. If you decide you no longer need the equipment before the lease ends, terminating your contract can be costly, unlike selling owned equipment where you might recover some of the initial costs.

Being aware of these potential downsides ensures you’re well-prepared to make a decision that won’t hurt you in the long run.

Things to consider before leasing kitchen equipment

If you’re thinking about leasing kitchen equipment for your restaurant, keep in mind:

• Monthly expenses: Leasing can help distribute costs over time, but the eventual total might differ from a one-time purchase. Proper budgeting can ensure manageable monthly lease payments.
• Balloon payment: Should you decide to purchase the equipment post-lease, be prepared for a larger balloon payment. Make sure to allocate sufficient funds if you consider this option.
• Interest rates: Leasing companies might charge higher interest rates than other lenders.
• Contract details: Thoroughly review the lease agreement. Familiarize yourself with any early termination penalties and ensure you fully understand the terms before committing to it.

To lease or to purchase?

Still unsure of whether you should lease or purchase? Let’s dissect the pros and cons of purchasing to help guide your decision.

The upside of purchasing

1. Efficient: Purchasing kitchen equipment is typically a faster and more streamlined process. There’s no navigating through the maze of leasing paperwork, deciphering complex terms, or worrying about annoying termination fees.
2. Tailored to you: When you buy, you get the luxury of customizing your equipment to fit your restaurant’s specific needs.
3. The comfort of warranties: Most kitchen appliances and tools come with multi-year warranties. This means less worry over potential breakdowns, shielding you from unexpected repair costs.

The downside of buying

1. Large expense: Purchasing kitchen equipment adds a large line item to your total construction budget, which can take away from other areas where you can use these funds.

2. Depreciation: Over the years, the value of what was once “state-of-the-art “restaurant equipment can drop significantly.
3. Potential for debt: Making a direct purchase can strain your finances. And if you rely on credit to facilitate the purchase, the interest can be especially painful when paired with equipment that’s already depreciating in value.

In general, it’s important to consider which option, leasing or purchasing, is right for you. There’s no right or wrong way to get what you need. You might even find yourself doing both, depending on your business needs. Just remember to evaluate cash flow and short- and long-term objectives before making a decision.

Conclusion

Equipping a commercial kitchen requires careful research, planning, and budgeting. Whether you lease or buy, it’s important to recognize that each choice serves a unique purpose. For equipment that frequently upgrades, leasing might be preferable to keep your operations up to date. However, for durable equipment, purchasing or renting could be more budget friendly. Overall, it’s vital to acquire quality machines that can help your business grow.

For more information on how to open your dream restaurant, contact SCGWest today and discover how we can guide you towards success!