If you want to lease restaurant equipment with bad credit, you should expect to pay higher rates than with better credit. Bad credit leases also may not be available on new or premium equipment. However, there are still steps you can take with bad credit to get the equipment you need for your small business.
Smarter Finance USA offers competitive rates on new or used restaurant equipment. If you have a credit score above 600 and have 5%+ as a down payment, you may qualify for up to $250,000 in quick, hassle-free equipment funding.
Restaurant Equipment Leasing Providers
There are many restaurant equipment leasing providers from which to choose. Lenders willing to work with borrowers with bad credit are harder to find. We’ve researched lenders that are known in the leasing industry for their willingness to lend to borrowers with less than perfect credit.
Restaurant Equipment Leasing Providers
Smarter Finance USA
New businesses with credit over 620
Flexible programs with 560+ credit
No minimum revenue and leases starting at $1,000
US Business Funding
Businesses with at least $250,000 in revenue and bad credit
1. Smarter Finance USA
Smarter Finance USA is a unique equipment leasing option. It will lease not only to new businesses but also to entrepreneurs with low credit scores. Minimum credit score requirements start at 550 for equipment leasing. Smarter Finance USA offers leases up to $250,000 as well as term loans.
Borrowers that don’t have the business history to qualify for leases with more established lenders will appreciate Smarter Finance USA’s flexibility. Additionally, with term lengths ranging from one to seven years, business owners can tailor a restaurant equipment lease to fit their needs.
2. Balboa Capital
Balboa Capital is another lender willing to work with newer businesses, and with owners who have lower credit scores. Balboa offers several different programs, including equipment leasing, term loans, and merchant cash advance (MCA). A minimum credit score of 600 and one year in business is required for equipment leasing, with 560 required for term loans. Balboa offers application only leases up to $250,000.
Business owners who have at least one year in operations should consider Balboa Capital. With lower overall minimum credit requirements than some competitors, Balboa can help bridge funding gaps along the way with their MCA and term loan programs as well.
eLease has a variety of different leasing programs and are unique in their willingness to work with companies with as little as one month in business. They tend to work with borrowers with a minimum 600 credit score and offer leasing ranging between $1,000 and $500,000. eLease does not require a minimum annual revenue and has application only leases available up to $250,000.
Owners of startups that need access to equipment financing should consider eLease, particularly if they need access to financing at the higher end of the range as eLease is one of the few providers that will provide equipment leasing more than $250,000.
4. US Business Funding
A marketplace lender with a focus on providing flexible capital to small businesses, US Business Funding has the lowest minimum credit requirements on this list, requiring just a 500 credit score from applicants. This is tempered by a minimum annual revenue requirement of $250,000 as well as needing to see two years in business to lend.
Well-established businesses with at least $20,000 in gross monthly revenue that are suffering from bad credit should consider US Business Funding. Offering equipment leases starting at $10,000 with no stated maximum and lease term lengths between two and seven years, US Business Funding can adapt to many businesses’ needs.
How Restaurant Equipment Leasing Works
Restaurant equipment leasing is a rental contract between you (the lessee) and a lender (the lessor) granting you the right to use certain restaurant equipment covered by your lease. The contract is written for a specific period of time, typically one to five years, and a specific payment frequency (usually monthly).
Leasing restaurant equipment allows your business to obtain necessary equipment or replace defective equipment in certain situations while avoiding the burden of coming up with a down payment and potentially higher loan payments. When you choose to lease equipment as opposed to buying, you can determine which type of lease works best for your business, based on whether you plan to keep or replace the equipment at the end of the lease term.
Leasing restaurant equipment can be a great option for businesses with bad credit―typically defined as a credit score below 620―as it helps you get the equipment that you need to expand your business while preserving working capital. It helps if you have been in business at least two years and are generating enough revenue to cover your existing obligations, as well as the new lease payments.
How Leasing Restaurant Equipment With Bad Credit Works
Leasing with bad credit typically has trade-offs when compared to traditional restaurant equipment leasing. You should expect to see higher interest rates, pay more money upfront, and experience some limits regarding what type of equipment leases will be available to you. The lender is going to look for ways to limit their exposure to risk and pass that risk along to you in the form of higher finance charges and down payments.
It is important to understand the terms when applying for an equipment lease with bad credit. Some lenders or loan brokers will collect an application fee upfront, and guarantee that they will find you funding or your money back. Be wary of these offers. A lender may be able to find financing for you that is of little benefit due to the high down payment or excessive finance charges and still technically meet their obligation to justify their upfront fee.
Who Restaurant Equipment Leasing Is Right For
There are several scenarios in which leasing restaurant equipment, even with bad credit, may make the most sense for your business. You should consider leasing restaurant equipment if you want monthly payments that are typically lower than loan payments required to buy the same equipment, plan to replace the equipment frequently, or need equipment that is at risk of obsolescence.
Some reasons why you should consider leasing restaurant equipment are:
- Greater flexibility: Leases can be written up in a variety of ways, and it is common for leases to have flexible payment schedules, as well as deferred payments available for businesses with seasonal cash flow ebbs and flows.
- Lower cost: Leasing can have much lower upfront costs, and fair market value (FMV) leases can be written with lower monthly payments based on the length of the term and residual value of the equipment.
- More frequent upgrades: Often, equipment becomes obsolete quickly, and leasing allows your restaurant to upgrade equipment on a more frequent basis, as well as avoid long-term obligations.
It’s important to keep in mind that when leasing equipment with bad credit, some flexible terms may be harder to get, and lease payments will likely be higher in relation to a higher interest, or financing, rate. You will also want to keep in mind that for the equipment you plan to keep, leasing is often more expensive overall than financing the equipment or buying outright.
Ways to Lease Restaurant Equipment With Bad Credit
When leasing restaurant equipment, there are two different types of leases: capital leases―also called finance leases―and operating leases. The two are differentiated by how the lease contract is structured, as well as whether the effective intent of the lease is eventual ownership of the asset by the lessee.
Capital leases are defined as any lease where ownership of the asset it transferred to the lessee at the end of the term, or if a purchase option is “reasonably certain” to be exercised. Also included is any lease for a “significant portion” of the asset’s remaining life, and any lease where the lease payments equal a substantial percentage of the leased asset’s total value.
Capital leases are typically seen on longer-term leases for expensive equipment, as well as equipment that is expected to remain functional for 10 years or greater. Capital leases come with an added advantage of depreciation, and business owners can even take advantage of accelerated depreciation using Section 179. In line with recent updates to capital (finance) lease criteria, more leases are being categorized as capital leases.
An operating lease is effectively any lease that doesn’t meet the criteria to be considered a capital lease. If the leased asset has a shelf life that significantly exceeds the length of the lease, and there is no reasonable expectation that the lessee will take ownership of the asset at the end of the term, then the lease is considered an operating lease.
Operating leases have given an advantage to the business owner in the past by allowing the asset and corresponding liability to be kept off the business’ balance sheets. That advantage remains for leases with terms under 12 months. However, updated accounting guidelines instruct business owners to list the asset and liability for all leases over 12 months.
The odds are that, unless you’re leasing equipment with a long shelf-life for a short period of time, you’re going to be using a capital lease. However, you’ll want to make sure you read your lease agreement carefully and understand the difference between a capital lease vs operating lease so that you can take proper advantage of tax savings and account for the lease properly on the books.
Restaurant Equipment Leasing Costs
Restaurant equipment leasing costs include the interest rate, which ranges anywhere from 6% to over 30%. With bad credit, the effective rate may be as high as 50%. Some lenders also charge a flat administrative fee or a percentage of the lease as an origination fee. Terms typically range between two to five years, and a down payment may also be required.
Restaurant equipment leasing rates and fees include:
- Interest rate: This is the effective interest you will pay on the equipment, and averages 6% to 16%. With bad credit, expect this rate to be 30% or more.
- Administrative fee: Some lenders charge an administrative fee at lease closing, ranging between $200 and $300.
- Application fee: Some lenders may charge an application fee and keep it whether you’re approved or not. Be wary, as they may make interest rate promises they can’t keep to secure your application. Fees vary from $100 to thousands of dollars.
- Down payment: 0% down leases exist, but they will be difficult to get for borrowers with less-than-perfect credit. If you have poor credit, expect to put down between 20% to 50%.
If you want to lease restaurant equipment with bad credit, you can expect costs to be on the higher end. You can estimate these costs using an equipment lease calculator. Lenders charge higher rates and ask for larger down payments to protect themselves from the risk of default. That doesn’t mean you shouldn’t shop for better rates. Keep in mind that some lenders and brokers may also charge an application fee upfront. It may be best to avoid these lenders and focus on lenders who will fund your lease without any upfront fees.
Restaurant Equipment Leasing Terms
Some restaurant equipment leasing terms include:
- Length of lease term: This is the length of time you will lease the equipment. Some leases are as short as six months. Average terms range between two to five years.
- Repayment frequency: This is how often a lease payment will be due and is typically monthly. Flexible payment schedules, such as seasonal and deferred payment options, are available as well.
- Purchase option: Many leases will give you the option to purchase the equipment at the end, at a bargain rate, typically either $1 or 10%. Otherwise, you will pay the fair market value at the end of the lease.
The terms of the equipment lease may also be negotiated to increase your odds of approval while creating some additional risk, including negotiating a lease with a 10% purchase upon termination option, which obligates you to buy out the equipment at the end of the term. This will keep your monthly payments lower than a $1 purchase option at the cost of a higher balloon payment due at the end of the term.
Restaurant Equipment Leasing Qualifications
While a minimum credit score of 660 is usually required to lease restaurant equipment, some alternative lenders will lease equipment to those with bad credit, as low as 550. Some lenders may be willing to go lower based on the strength of your business and your cash flow. Most lenders require at least two years in business and $100,000 in gross revenue.
Some of the minimum qualifications for leasing restaurant equipment are:
- Credit score: Lenders willing to work with bad credit may go as low as a 550 credit score or lower, depending on time in business and cash flow.
- Time in business: Most lenders want at least two years in business, especially with bad credit. Some lenders will work with you with as little as one month in business.
- Annual revenue: Some equipment leasing companies do not require a minimum annual revenue. However, borrowers with bad credit should have at least $100,000 in gross annual revenue.
A common theme when leasing restaurant equipment with bad credit is lenders who say “it depends” when asked what their minimum qualifications are. This isn’t a disingenuous dodge. For alternative lenders, it is a function of balancing their risk.
If the leased equipment maintains its value well, and your business has sufficient cash flow to support payments with a track record of meeting your business debt obligations, many lenders will be willing to get creative to make a lease happen. As long as you’re willing to shoulder some higher costs, lending is available for many bad credit situations.
Tips to Lease Restaurant Equipment With Bad Credit
If you’re a restaurant owner facing the challenge of leasing equipment with bad credit, you are not alone. According to Fair Isaac Corporation (FICO), about one-third of the United States population has a “poor” credit score, which FICO defines as credit scores from 300 to 629. The good news is you can still get financing, even with poor credit.
Know Your 5 C’s
There is a well-worn concept in the lending world known as “the five C’s of credit” ― character, capacity, capital, conditions, and collateral. These are the five most common criteria a lender will evaluate when determining whether to lend to you. Understanding your five C’s will help you put your best foot forward when working with a lender.
Some ways you can improve your five C’s include:
- Check your credit: Get a copy of your credit report and look for issues that you can address, including late payments, judgments, and liens. Dispute any inaccuracies and continue to monitor your credit.
- Evaluate your cash flow: Look at your balance sheet to free up cash flow by eliminating unnecessary overhead.
- Minimize unnecessary debt: Be deliberate with your purchases. If you don’t need to replace a piece of equipment right away, consider whether repair is a viable option. Look to the secondhand market when it makes sense.
- Write up a business plan: When you speak to a lender, be ready to talk about your market, as well as how you will use the equipment you’re leasing, and how that will help you increase your revenue.
- Consider your collateral: Lenders want to minimize their risk, and so the condition and reliability of the equipment you choose may impact a lender’s willingness to finance a deal.
Get a Co-signer
A strong co-signer can give the lender confidence that if you fail to meet your repayment obligations, they will still get paid. Lenders will often accept a strong co-signer whether they’re related to your business or not. Lenders will also typically require all business partners to co-sign if their stake in the business exceeds 20%.
When considering a co-signer, it’s important to weigh the benefits of obtaining better terms with the disadvantage of having someone else guarantee your obligation. If your business fails and you’re unable to make payments, your co-signer will either need to come up with the payments themselves or take the negative hit to their credit.
Build Your Credit
This may seem like an obvious suggestion but can be difficult in practice. That said, it is important for any business owner suffering from bad credit to take proactive steps to build their personal and business credit profiles.
Regarding your personal credit score, there are several steps you can take toward building your personal score, including taking out a secured credit card, a credit-builder loan, and asking for credit limit increases. You’ll want to balance these steps with the short-term impact of increased credit inquiries.
To build business credit, you can establish lines of credit with vendors that you work with and ask them to report those to the credit bureaus. Additionally, you can get a DUNS number and provide three trade references to obtain a Dun & Bradstreet (DNB) credit score.
Smarter Finance USA offers a straightforward approach to restaurant equipment leasing and accessible underwriting guidelines, allowing restaurant equipment leasing with bad credit for borrowers with a credit score of at least 550 on equipment up to $250,000.
Pros & Cons of Restaurant Equipment Leasing
There are several advantages to leasing your restaurant equipment, including preserving cash flow and keeping equipment up to date that needs frequent replacement. There are disadvantages as well, including higher costs, complicated accounting, and tax rules, and potential fees for canceling a lease early.
Pros of Restaurant Equipment Leasing
Some of the reasons to consider restaurant equipment leasing are:
- Preserve cash flow: Leasing equipment usually means a lower monthly payment than financing the same equipment and is helpful for businesses that cannot afford to purchase the equipment outright.
- Keep equipment up to date: Many types of equipment become obsolete quickly, and leasing allows your business the flexibility to upgrade equipment often.
- Take advantage of tax breaks: With a capital lease, your business can take advantage of accelerated depreciation, or depreciate the asset on a straight line, to offset taxable income.
Cons of Restaurant Equipment Leasing
Some of the reasons to consider an alternative to restaurant equipment leasing are:
- Higher cost: For businesses that ultimately intend to own the equipment, leasing may come at a higher overall cost than taking out an equipment loan.
- Increased complexity: Often, the tax and accounting rules are more complicated with a lease compared to purchasing the equipment outright, adding to the administrative burden.
- Cancellation fees: Many leases have a penalty for early cancellation. If your business can no longer afford a lease, or no longer needs the equipment, you may face a high cost to terminate the lease early.
Alternatives to Restaurant Equipment Leasing
Several alternatives to leasing restaurant equipment exist, and which one is right for your business will depend on your specific needs. For example, your business may need access to cash to make up for seasonal shortages or working capital for expansion. You may intend to own the equipment long term.
Line of Credit
A revolving business line of credit can help you purchase the restaurant equipment you need as well as other needs as they come up, by allowing your business to borrow money, pay down the outstanding balance, and then continue to borrow against the line. Payments are typically required only on the interest owed during the draw period. Many businesses use a line of credit to help them manage overhead, such as payroll through seasonal dips.
A term loan can help you buy the equipment that you need, as well as provide additional working capital for other needs. Term loans are a single, lump-sum loan, and the proceeds can typically be used for most business needs. Repayment is over a preset specific period of time between one to five years.
Merchant Cash Advance
If your business needs cash short term to replace a critical piece of equipment, a merchant cash advance may be an option for consideration. You should only consider a merchant cash advance if you have evaluated all other options available first. A merchant cash advance allows you to trade on the strength of your receipts and receive cash quickly, which makes it a quick tool to get cash for emergencies.
Buying the equipment through an equipment loan can be a great option if you know you want to own the equipment in the end. Equipment loan costs will be similar to an equipment lease with a $1 purchase option, and higher than a fair market value lease. The benefit is usually lower overall costs; however, equipment loans are less flexible, so if you’re not sure you want to keep the equipment long-term, you should consider more flexible options.
Business Credit Card
A business credit card is usually the easiest form of credit for a business to obtain and may be especially appealing to new businesses, which will find it difficult to get approved for funding without two years of financials and revenues. Some business credit cards offer introductory annual percentage rates (APRs) while others offer compelling rewards. Using a business credit card to buy equipment may be a great option, but watch out for high APRs that kick in after the introductory APR expires
Leasing Equipment vs Buying Equipment
Many business owners ask themselves if it’s better to lease equipment or buy it outright if they’re able. Purchasing outright certainly has its advantages, including lower overall costs, and increased flexibility with the equipment. For example, you decide the maintenance schedule, rather than having it decided for you. Because you’re not paying any interest or finance charges, your out-of-pocket expense will be lower.
On the other side of the equation, equipment depreciates. Many financial professionals suggest you buy appreciating assets and lease depreciating assets that are critical to your business, especially if the equipment becomes obsolete quickly. If buying equipment outright means you need to borrow for other expenses, like meeting payroll and other overhead, then you might be better off leasing the equipment.
Ultimately, which route you choose will depend on your specific situation, your cash flow, and the useful life of the equipment you need. If the equipment has a long useful life and you have the cash on hand to buy it outright without negatively impacting your cash flow, or increasing your unsecured debt, then buying outright might be the right answer.
Restaurant Equipment Leasing Frequently Asked Questions (FAQs)
Here are some of the most frequently asked questions about leasing restaurant equipment. If you have other questions you don’t see below, be sure to post in the comments or visit our forum.
Is it better to lease or buy restaurant equipment?
Leasing equipment allows your business to preserve cash flow as well as frequently upgrade the equipment, where buying the equipment is ultimately less expensive. Ask yourself how long you plan to keep the equipment, as well as whether or not you can afford to purchase the equipment outright.
How long can you lease equipment?
The average term of an equipment lease is between two to five years. Terms as short as six months are possible, and terms up to 10 years are available with some leasing providers. The length of a lease will be influenced by the life of the asset being leased.
What is the difference between leasing and renting equipment?
A lease is essentially a rental contract for a piece of equipment, with some important distinctions. Rental contracts are typically for much shorter periods―a few hours to several weeks, up to a one-year maximum―and the equipment is returned at the end of the rental period, with no consideration given to purchasing.
Can I lease equipment as a startup?
Some alternative lenders will work with startup businesses based on the business owners’ personal credit and financial strength. However, it is common for leasing companies to ask for two years in business to lend, so it is important to ask this question early on.
Leasing restaurant equipment with bad credit, like most things in the financial world, will be more challenging than if you had perfect credit. Knowing what types of leases are available, what criteria lenders will be looking at, and how to find the right provider will help you put your best foot forward and find the right financing for your business.
Borrowers with a credit score of at least 550 can visit Smarter Finance USA and receive same-day approvals funding in as little as 24 hours on restaurant equipment up to $250,000.