Leasing equipment is the best entree for restaurant owners
Lisa A. Tyrrell
The restaurant industry is doing so well. There rarely is a time that I drive by a franchised restaurant during lunch or dinner and don't see lines out the door. It's an exciting time to be in this industry.
The nations 878,000 restaurants should hit $440.1 billion in sales for 2004, according to statistics detailed in the industry news.
New businesses continue to open and existing restaurants need to keep up with the competition and the carb craze. Equipment financing plays an important role in these cases and should be considered to help owners conserve cash and budget to a fixed, monthly payment.
Leasing restaurant equipment is a choice made by thousands of entrepreneurs each year.
According to recent industry statistics, billions of dollars worth of restaurant equipment is leased annually in the United States.
Restaurants typically lease equipment because they understand that leasing offers several important advantages over other types of financing. These advantages include tax deductions, precise cash flow management, immediate write-offs and quick processing.
As of the 2003 calendar year, the Internal Revenue Service program Section 179 states that when entering into a one-dollar buyout option lease a client may deduct up to a total of $100,000 from income.
A client does not need to spend $100,000 in cash, but instead enter into a lease agreement for that amount or greater.
The equipment on a one-dollar buyout option lease can be depreciated according to the IRS "useful life" rules, which can be explained by a tax professional.
Important variables to keep in mind are:
Lease Term
Be sure and structure the term of your financing agreement with the estimated life of the equipment.
Purchase Option
Understand what the buyout cost is at the end of the lease term.
Taxes
Know your tax rate and understand how tax is treated on a lease transaction in the state your business is located.
Advance Payments
Typically two payments are required in advance - be sure and identify what advance payments are required before you sign any contractual documents.
Financing Limits
Discuss with your potential lender if there are any financing restrictions or limits. This could be a key point if you are committed to a multi-unit project.
In addition to the variables above there are a number of key factors to consider when shopping for equipment financing.
It is important to ask if there are non-refundable fees associated with your credit request that are not applied to the benefit of your lease.
Do you have a firm commitment or a proposal from a lender? Remember that the large print giveth and the small print taketh away.
Are you working with a direct lender or a broker? Understand the source you are working with.
How long will it take to get an approval? Time is of the essence. Your equipment lease will offer a fixed monthly payment. This will allow you to hedge rising interest rates. Leasing allows 100 percent financing with typically two advance payments. Keep in mind that banks and many lenders will allow 80 percent financing and will need 20 percent cash equity.
Equipment financing is a product.
A seasoned leasing professional will understand the nuances of your industry and have the knowledge to get your requests approved and closed.
Don't hesitate to ask questions and get references.
Shopping for and securing financing can be difficult at best. The equipment-leasing program you select should take into account the individual needs of the project no matter how ordinary or exceptional they may be.
Look for a full service equipment leasing and financing company that services its leases from origination to termination.
Lisa A. Tyrrell is a financial sales executive with Vendor Capital Group, a direct lender providing equipment leasing alternatives to most any franchised business. She has over 15 years commercial equipment leasing experience. She can be reached at lisa.tyrrell@vendorcap.com.
