Equipment is one of the biggest and most important expenses of the restaurant business. Your ovens, fryers and freezers must be high quality and up-to-date in order to eliminate the likelihood of something breaking. Many restaurateurs try to avoid this scenario at all costs, partially due to seasonality. They can’t afford to lose any business during the busy season, and the slow season can quickly dry up what’s left of their operational funding. Purchasing equipment is one of several aspects of this industry that has gotten harder and easier at the same time. Equipment is becoming more advanced and therefore more expensive. But thanks to companies like United Capital Source, there are much less roadblocks preventing a smaller, younger restaurant from obtaining equipment the moment they need it. Equipment financing is not what it used to be and should no longer be written off as too complicated or inaccessible.
But unless you’ve been monitoring the business financing industry, you might not be aware of how much equipment financing has changed as of late. Here are three things to know about equipment financing for your restaurant:
1. Collateral Isn’t Always Required
The traditional definition of equipment financing states that the equipment being purchased will be collateral for the loan. Until you pay off the debt in full, the business lender will technically own the equipment. If you default on the loan or your business declares bankruptcy, the business lender will take possession of the equipment and sell it to make back the money they lost. The need to provide collateral has driven countless business leaders away from small business loans altogether. They might not like the idea of not being the legal owner of their new equipment for several years, depending on the terms of the loan. The equipment they have in mind might not be particularly expensive, which gives them the impression that business lenders won’t be inclined to work with them or will assign absurdly high interest rates.
But this is just the old definition of equipment financing. Today, equipment financing doesn’t always require the equipment to be put up as collateral. Some business financing companies don’t require collateral for equipment financing at all if they take the time to get creative. At United Capital Source, we usually do not require collateral or a personal guarantee for most our business funding programs. When you purchase your new equipment, it will be yours, and you won’t have to make massive payments shortly after.
A traditional business lender might wonder how a company is able to do this without assigning crushing interest rates. “What about the risk?” they’d say. Well, you’d be surprised at how much easier it is to pay off a loan when the terms actually make sense and can be adjusted for external circumstances like seasonality.
2. Not Just For The Oldest Or Wealthiest Businesses
Another common characteristic of traditional equipment financing programs is steep requirements. Applicants must have stellar personal credit, high annual revenue and be in business for at least two years. Considerable paperwork is involved as well. Equipment financing from UCS, on the other hand, literally requires none of these things. We frequently approve applicants with poor or little credit history and work with companies that are under a year old.
Yes, we are well aware that we are far from the only business financing company with looser requirements and a seamless application. But the requirements of these other companies tend to come with caveats. Some business lenders purposely assign terms that force the borrower to continue making payments long after the equipment becomes obsolete. Our program is refreshingly straightforward. The terms we assign will most likely be based on how much the new equipment will improve revenue and when that improvement begins to take shape.
3. Cash Flow Doesn’t Have To Be Perfect
Equipment financing is essentially another word for a business term loan that is used to purchase equipment. Business term loans typically come with fixed, monthly payments that begin immediately after funding is distributed. This payment system requires strong cash flow, which suggests that cash flow must be nearly flawless in order to be approved for equipment financing. Perfect cash flow, however, is relatively rare in the restaurant industry. Most restaurants are at least partially effected by seasonality or prone to major drops in revenue throughout the year.
This is why we are generally willing to approve equipment financing applications when restaurant are in their slow season. Terms can be arranged to accommodate your lower revenue, and we can postpone your largest payments until business picks back up. We know that the price of equipment depends on the state of your industry. A temporary rough patch should therefore not stop you from taking advantage of limited opportunities to save money.
A big reason equipment financing is so much more accessible these days is the growing necessity for expensive equipment. Even the smallest businesses must make significant equipment purchases just to maintain their business model. It is therefore up to the business financing industry to adjust business funding opportunities to the current climate. Talk to a company like United Capital Source and you’ll find out that this is far from the only program that is now much easier to obtain.