How to Get Equipment Financing for Your Restaurant
How to Get Equipment Financing for Your Restaurant
Opening or upgrading a restaurant requires serious capital, and most of that budget goes toward equipment. The average cost of outfitting a commercial kitchen ranges from $100,000 to well over $
This guide walks you through the full process of financing your kitchen equipment, step by step. You will learn how to choose between loans and leases, what lenders typically look for, and how to compare your options so you can make the right call for your business.
What Is Restaurant Equipment Financing?
Restaurant equipment financing is a type of small business financing designed to help you purchase or lease the equipment your restaurant needs to operate. Lenders provide the capital, and the equipment itself often serves as collateral for the loan. That means if you default, the lender can reclaim the equipment rather than going after other business or personal assets.
Common types of restaurant equipment that can be financed include:
- Commercial ovens and ranges
- Walk-in coolers and refrigerators
- Dishwashers
- Fryers and grills
- POS systems
- HVAC systems
- Prep tables and shelving
- Ventilation and hood systems
If the item is essential to running your restaurant, there is a good chance you can finance it.
Equipment Loan vs. Equipment Lease: Which Is Right for You?
When financing kitchen equipment, you will generally choose between two structures: an equipment loan for your restaurant or a restaurant equipment lease. Both have advantages depending on your situation.
| Factor | Equipment Loan | Equipment Lease |
|---|---|---|
| Ownership | You own the equipment after payoff | Lender retains ownership (unless you exercise a buyout option) |
| Monthly Payments | Typically higher | Typically lower |
| Down Payment | Often 10-20% | May require little to no down payment |
| Tax Benefits | Section 179 deduction on the full purchase price | Lease payments may be deductible as a business expense |
| Flexibility to Upgrade | Limited until the loan is paid off | Easier to upgrade at end of term |
| Best For | Long-life equipment you plan to keep | Technology or items you may want to replace |
When a Loan Makes More Sense
An equipment loan tends to be the stronger choice when you are purchasing items with a long useful life. Walk-in coolers, commercial ovens, and ventilation systems can last 10 to 15 years or longer. If you plan to use the equipment for seven or more years, owning it outright through a loan lets you build equity in that asset. Once the loan is paid off, you have no further payments but still have a working piece of equipment.
When a Lease Makes More Sense
Leasing works well for equipment that may become outdated or need frequent upgrading. POS systems and certain specialty appliances fall into this category. A restaurant equipment lease also makes sense if you want to preserve cash flow with lower monthly payments, or if you are not sure about the long-term direction of your concept and want flexibility to swap equipment down the road.
Step 1: Determine What Equipment You Need and the Total Cost
Before you apply for any financing, create a detailed equipment list. Write down every piece of equipment your restaurant needs, from the walk-in cooler to the smallest prep tool that requires financing.
For each item, get vendor quotes from at least two or three suppliers. This gives you accurate numbers for your financing application and may help you negotiate better prices.
A few practical tips for this step:
- Separate must-have equipment for opening day from items that can wait a few months.
- Consider used or refurbished equipment for non-critical items. This can significantly lower your total financing amount.
- Factor in delivery, installation, and any modifications your kitchen space might need.
Having a clear, itemized list with real costs makes the rest of the process much smoother.
Step 2: Check Your Qualifications
Lenders evaluate several factors when reviewing an equipment financing application. While requirements vary from lender to lender, here are the typical qualification factors:
- Personal credit score: Many lenders look for a score of 600 or above. Stronger credit profiles generally open up more options with more competitive terms.
- Time in business: Established restaurants with two or more years of operating history will typically qualify for a wider range of products. Startups have fewer options, but financing is still possible, especially with a strong business plan and personal credit.
- Annual revenue: Lenders want to see that your business generates enough revenue to cover the monthly payments.
- Existing debt load: If you already carry significant debt, lenders may view the additional financing as higher risk.
Keep in mind that meeting minimum requirements does not guarantee approval. Every lender has its own underwriting criteria, which is one reason why comparing multiple options matters.
Step 3: Gather Your Documentation
Having your paperwork ready before you apply can speed up the process significantly. Most lenders will ask for some combination of the following:
- Business plan (especially important for startups)
- Bank statements from the last 3 to 6 months
- Personal and business tax returns (typically 2 years)
- Equipment quotes or invoices from your vendors
- Profit and loss statements
- Business license and registration documents
- Personal identification
If you are a first-time restaurant owner without operating history, your business plan becomes your most important document. Include realistic financial projections, your concept overview, target market analysis, and details about your management team.
Step 4: Compare Financing Options
Restaurant owners have several financing channels to choose from. The right one depends on how much you need, how quickly you need it, and your qualifications. Using a marketplace like Bread Route lets you compare multiple lenders in one place, saving time and giving you a broader view of what is available. You can explore equipment financing options to see what fits your situation.
Traditional Equipment Loans
A standard equipment loan gives you a fixed amount with a fixed repayment schedule. Terms typically range from 3 to 10 years, and the equipment serves as collateral. You may need a down payment of 10-20%, depending on the lender and your credit profile. These term loans are straightforward and work well for restaurant owners who want to own their equipment outright.
SBA 7(a) Loans for Restaurant Equipment
Government-backed SBA 7(a) loans are a popular option for restaurant owners, especially those making larger purchases. These loans tend to offer longer repayment periods and competitive terms compared to conventional options. The trade-off is more paperwork and a longer approval timeline. If you are planning a new restaurant build-out or a major kitchen renovation, an SBA loan is worth considering.
Equipment Leasing
Leasing comes in two main forms: operating leases and capital leases. An operating lease is similar to renting, with lower monthly payments and the option to return the equipment at the end of the term. A capital lease functions more like a loan, with a buyout option that lets you take ownership after the final payment. Some leases include maintenance, which can simplify your budgeting.
Lines of Credit and Working Capital
For smaller equipment purchases or to cover gaps between larger financing rounds, a business line of credit or working capital loans can be useful supplements. These options provide flexible access to funds that you can draw on as needed, rather than taking a lump sum for a single purchase.
Step 5: Apply and Review Your Offers
Once you have identified the financing type that fits your needs, it is time to apply. If you use a marketplace like Bread Route, one application can connect you with multiple lenders, so you can compare offers side by side.
When reviewing offers, look beyond the monthly payment. Pay close attention to:
- APR (annual percentage rate): This reflects the true cost of borrowing, including fees.
- Total cost of financing: What will you pay over the life of the loan or lease?
- Prepayment penalties: Some lenders charge a fee if you pay off the loan early.
- Origination fees and other charges: These can vary widely between lenders.
Take your time reviewing terms. The lowest monthly payment is not always the most affordable option when you factor in total costs and fees.
Step 6: Close the Deal and Get Your Equipment
After you accept an offer, you will sign the financing agreement. Depending on the lender and the structure of the deal, funds may be disbursed directly to you or sent straight to the equipment vendor.
Once the paperwork is finalized, coordinate delivery and installation with your vendor. Make sure the equipment is inspected upon arrival and that everything matches your original order.
Keep all receipts, invoices, and financing documents organized. You will need them for tax purposes, especially if you plan to take advantage of the Section 179 deduction or deduct lease payments as a business expense.
Tips for First-Time Restaurant Owners Seeking Financing
If this is your first restaurant and you are navigating a small restaurant equipment loan for the first time, these practical tips can help:
- Start with a solid business plan. Lenders want to see that you have thought through your concept, market, and financials. A strong business plan can offset a limited operating history.
- Consider buying used for non-critical items. Prep tables, shelving, and basic smallwares do not need to be brand new. Save your financing capacity for the equipment that matters most.
- Borrow only what you need. It is tempting to finance every item on your wish list, but over-financing adds unnecessary monthly payments to your operating budget.
- Factor payments into your operating budget. Before you sign, make sure your projected cash flow can handle the monthly payments alongside rent, payroll, food costs, and other overhead.
- Build business credit early. Even small financing activities, like a business credit card used responsibly, can help establish a credit profile for your business.
- Bundle equipment into one financing package. Rather than taking out separate loans for each piece of equipment, combining everything into a single package simplifies your payments and may give you more leverage when negotiating terms.
- Compare lenders before committing. Different lenders offer different terms, and the first offer you receive may not be the most competitive. You can browse lenders through Bread Route to see a range of options.
Next Steps
If you are ready to explore restaurant equipment financing, Bread Route can help you compare offers from multiple lenders with a single application. You do not need to visit every bank in town or spend hours researching individual lenders. See what you may qualify for and review your options in one place.
This article provides general information and should not be considered financial or insurance advice. Financing terms, qualification requirements, and available products vary by lender. Bread Route is a marketplace that connects business owners with lenders and does not make direct lending decisions.
Frequently Asked Questions
Yes, some lenders work with startups that have no revenue yet. You will typically need a strong personal credit score, a detailed business plan, and potentially a larger down payment. Options may be more limited compared to established restaurants, but financing is still available.
Many lenders look for a personal credit score of 600 or above, though requirements vary. A higher credit score generally gives you access to more options and more competitive terms. Some lenders may work with lower scores depending on other factors like revenue and time in business.
Timelines vary by lender and loan type. Some online lenders can provide a decision within one to three business days. SBA loans and traditional bank loans may take several weeks due to additional paperwork and underwriting requirements.
It depends on the type of equipment and your business goals. Buying makes sense for long-life items you plan to use for many years. Leasing is a better fit for technology that may need upgrading or when you want to keep monthly costs lower. Many restaurant owners use a mix of both.
Most commercial kitchen and restaurant equipment can be financed, including ovens, refrigerators, freezers, dishwashers, POS systems, HVAC units, fryers, grills, prep tables, and ventilation systems. If the item is essential to your operations and has a clear resale value, it can likely be financed.
Down payment requirements vary by lender and your credit profile. Many equipment loans require 10-20% down, while some leases may require little to no upfront payment. Stronger credit profiles and established businesses may qualify for lower down payment requirements.
Yes, many lenders finance used and refurbished restaurant equipment. The equipment typically needs to be in good working condition, and some lenders may require an appraisal or limit the age of the equipment they will finance. Financing used equipment can be a smart way to lower your overall costs.
You are still responsible for repaying the loan even if your restaurant closes. If you default, the lender can repossess the equipment since it serves as collateral. Depending on the loan terms, you may also be personally liable for any remaining balance. Review the terms of your agreement carefully before signing so you understand your obligations.