Financing Can Seal the Deal

The cost of foodservice equipment, accessories and supplies can add up quickly – the highest list price for one item in the AQ Catalog is more than $285,000 – so how to pay for everything becomes a major concern.

By helping your customers – restauranteurs and end-users – understand the financing and payment options available to them, you can make it easier for them to say “yes” to the deal. AutoQuotes’ CPQ software not only makes it easy for you to quote the right products, it now offers more leasing company choices. You can find these choices as you finalize your quote in the in the Report Viewer within AQ. (See Complete Your Quote with Leasing Options in this newsletter.) To guide your customers to the best financing and payment solution, here’s what you need know:

Buying

Buying equipment outright is the simplest way of doing things and almost always results in a lower overall cost, especially if it’s an expensive, durable piece of equipment the customer plans on using for a long time. When you buy it, it’s yours – you can use it (or not use it) as you like, alter or modify it as needed, and sell it when you want. As an asset you can write-off and/or depreciate the cost for tax purposes. Of course, buying means a large cash outlay at one time; cash that could be better utilized operating the restaurant.

Getting a traditional bank loan to purchase equipment can be problematic, as many banks consider restaurants a risky undertaking unless you’re already solidly established or highly capitalized. You’ll still have a large cash outlay in the form of a down payment, and banks will often apply a variable interest rate that will increase your overall cost and make your cash flow more difficult to predict.

Finally, even with warranties as an owner you are on the hook for maintenance, and if a newer and better technology comes out, you’re stuck with your older model.

Leasing

In a lease, the leasing company (lessor) as an owner of a piece of equipment grants you (lessee) the use of the equipment in exchange for a series of predetermined payments spread over a specific time. While you’ll generally pay more in total overall cost than with buying, your cash flow is protected because of known, set payment amounts and no large initial outlay or down payment.

When the lease is over, you’re done – the lessor as owner retakes possession. There is often a “lease-to-own” option, however, in which the lessee can purchase the item at the end of the lease term for the determined amount. As the owner during the lease term, the lessor is generally responsible for maintenance, which is one less cost and worry for the restauranteur.

While almost anything can be leased, leases are often used for items that don’t retain their value, have higher-than-average usage and wear-and-tear, break down often and/or become outdated or obsolete quickly.

For lessees it’s all about cash flow, and the first question is usually about the interest rate used to calculate the term payments. Lease expenses can be deducted as a normal operating expense for tax purposes.

Learn how to add and access leasing options here: https://aqnet.com/more-leasing-options-in-aq/

Equipment finance agreement (EFAs)

EFAs have grown more popular over recent years and are a type of hybrid between traditional leases/leases-to-own and traditional bank loans. EFAs act more like a traditional buy scenario (loan for a purchase) in that the restauranteur (and not the lessor) is the owner of the property, has an asset that can be written-off or depreciated for tax purposes, and a liability for payments due. The terms, payments and other conditions, however, are very similar, if not identical, to a lease. This includes the fact that the collateral in an EFA is just the equipment itself, as opposed to a traditional loan in which the bank can go after other assets.

The main reason EFAs have become popular deals with legal liabilities that can attach to the equipment owner – which in a traditional lease is the lessor, but in an EFA is the restauranteur. For example, assume that a deep fryer in a restaurant kitchen explodes, injuring employees and customers. The lawyers would go after the restauranteur in any event, and in a traditional lease arrangement may go after the lessor as equipment owner. EFAs can thus limit the legal exposure of the financing company in these situations.

Here’s a summary chart:

 

Benefit Buy (loan) Lease EFA
Total lower overall cost X
Ownership/asset equity X No – unless lease-to-own X
Lower initial cost – no down payment X X
Better cash flow – predictable payments X X
Avoid equipment becoming outdated X
Tax deduction – write-off/depreciation X X
Tax deduction – lease expense X
No maintenance cost X

So, helping inform your customers on how they can pay for their beautiful commercial kitchen just may help you seal the deal, and the AQ software can help provide some options.

Traducir »