The business of owning a restaurant is sophisticated and usually stressful. However, you feel the pain that much more when the need for costly-but crucial-restaurant appliances like the Grindmaster-Cecilware CCP15 commercial grills arises. There is no shortage of costly equipment in the restaurant industry. Most commercial kitchens require everything from grills and refrigerators to more advanced appliances, such as smart ovens and kitchen display systems. When a piece of restaurant equipment breaks, for the sake of this post the Grindmaster-Cecilware CCP15 commercial grill, or you need to increase capacity to keep up with rising demand, you have several options:
- Raise the money through equity financing: Where you essentially sell-off of a piece of your restaurant in exchange for capital.
- Wait until you have sufficient cash to replace your broken grill (which, let us face it; it is not really an option) or keep maxing out your current capacity.
- Take out a loan: Also called debt financing- which you will pay back, plus interest, over time.
When commercial grill breaks or you need to increase capacity to keep up with the increasing demand, you have several options: Many businesses are wary of debt financing since debt is a scary word that indicates risk and even threat of bankruptcy. And even though it is true taking on debt can be a risky endeavor, you can reduce your risk and explore ways in which debt in the short term ends up paying for itself in the long term. One of the best debt financing options, mainly for restaurants, is equipment financing. For our Grindmaster-Cecilware Lava Rocks Charbroiler, let us review how restaurant equipment financing works, and how you can use it to take it to advantage, and what other financing avenues may be available, just in case.
How does commercial grill financing work?
Typically equipment financing is a kind of debt financing that helps business owners pay for 100-percent(or close to it) of a vital asset for the business. In this case, the lender will give you the exact amount of money so you can purchase the grill right away. You will then repay that amount, plus interest, over the anticipated life of the equipment.
As financing goes, this kind of obtaining funding is fairly simple and easy. So what makes it so coveted by restaurant owners?
- The loan is self-secured: The Grindmaster-Cecilware CCP15 acts as collateral, so if the borrower defaults on the loan, the lender simply takes the grill back as repayment.
- The loan requirements are not stringent: Typically, applying for a bank loan requires meeting strict criteria, like a high business and personal credit scores and strong profit margins of your restaurant. Since the loan is self-secured, most businesses qualify.
- The loan is exactly what you require: If you wanted a business loan to pay for your commercial grill, you might need to take out an amount that far exceeds your real needs.
- Financing is fast: You can apply for this kind of restaurant financing and receive it in as little as one business day.
These are the basics of equipment financing loans. The specifics will mainly depend on who is lending you the money and your financial situation.
Is equipment financing right for my commercial grill?
In a vacuum, commercial grill financing sounds like an excellent deal for any restaurant that requires a Grindmaster-Cecilware CCP15 that the restaurant can not meet without crippling its cash flow. To determine if you would want a commercial grill loan; however, you will have to understand the typical costs of the loan, loan qualifications, the cons and pros, and if financing is better than leasing in the long term.
Grindmaster-Cecilware CCP15 equipment financing qualifications
The qualifications for this type of financing are less strict than a traditional bank loan. That just does not mean just anybody can apply for and get the financing- at least not with an annual percentage rate that makes sense for the bottom line. Generally, restaurants that qualified for commercial grill financing had:
- A time in the business of at least two years
- A personal credit score of not less than 630
- Over $ 130,000 in annual revenue
There is equipment financing for a startup business, too. If you have a new restaurant and you need help getting the Grindmaster-Cecilware CCP15, this is a more viable option for you than applying for an SBA microloan or bank loan.
Your typical commercial grill financing costs
Financing the commercial grill will depend on its cost. Typically, you will find a lender who will front you the money to buy. Interest rates tend to run from 8% to 30% for various commercial grill financing loans. You will continue to make payments on the Charbroiler for a predetermined set of time- generally for the usefulness of the equipment, but not more than ten years. A well-established restaurant with an elite credit score might see lower interest rates than new restaurants with less than stellar scores.
Restaurant equipment financing vs. restaurant equipment leasing
How does financing your Grindmaster-Cecilware CCP15 differ from leasing it?
As you can expect, the main difference is that at the end of your financing agreement, you will own the Grindmaster-Cecilware CCP15 outright. With leasing, you do not own the grill- you simply pay to have access to it. There are times when leasing commercial grills may make more sense. For instance, if the features you need in a grill are being constantly updated, you might find that at the end of your financing repayment period, you own a useless grill. Besides, you might need to supply a down payment upfront to your lender with financing, whereas with leasing, this is not the case. On the other hand, if you have the funds for a down payment and anticipate the grill to be a mainstay of your restaurant’s kitchen, the interest payments you make per month will be less than a lease payment, with the included bonus of owning your Charbroiler at the end of the process.
Your new cash flow considerations
The question with any type of financing is if your business can afford the new cash flow responsibilities of making monthly (or sometimes weekly) payments of the appliance. Monthly and annual revenue is a consideration to lenders, who need to make sure you have sufficient wiggle room to pay them back and maintain your typical restaurant operations comfortably. However, not every lender will scrutinize your books to the same extent, so it will be up to you to run the numbers and choose what is feasible. On the other hand, restaurant equipment financing usually comes into play when a restaurant truly requires an upgrade or replacement. Can your restaurant survive without the Grindmaster-Cecilware CCP15 until you have the cash to buy it outright?
What are some alternatives to restaurant equipment financing?
Equipment financing is not the only source of financing available to restaurant owners. There are various lending options- from online lenders and banks. You might find some are better options for you, or you may want to explore a combination of equipment financing and other funding to meet all your needs. Presuming you have good credit and a lengthy time-in-business- at least two years is the minimum, but the more years, the better- these are the most common funding options typically available to you:
- Traditional term loan: When you consider seeking a loan, you are probably thinking of this: A lender extends you a set amount of money, which you pay back in regular installments and interest. Term loans from banks will provide the absolute best rates- but bank loans are notoriously hard to acquire, and the process and the procedure might take months. Only the most profitable and stable restaurant will be considered. You might also qualify for a loan product from an online lender. Online lenders generally have lower standards and faster turnarounds than banks; however, their interest rates are higher as a result.
- Personal loan: a business owner can use a personal loan for your commercial grill financing needs. This is an alternative if you have a limited business history and would otherwise need to take out a costly short-term loan. The main downside is that the total loan amount will possibly be lower than what you would get for a business loan. Besides, your personal credit will take a hit if you do not repay the loan.
- Business line of credit: Typically, a line of credit is the same as a credit card. You get access to a pool of money, which you can draw from as required. You only pay interest on the amount of money you use and can draw on the line as many times as you need until the line is closed. Business owners prize a line of credit since of their flexibility. After you are approved, you can keep the line in your back pocket until a sudden need arises, like a broken commercial grill. Interest rates might be comparatively low as well, based on the borrower’s situation.