The benefits
There are various costs that restaurant owners have to juggle such as the leasing of property, marketing, food, beverages, fit-out and more. It can be a viable option for businesses that do not have enough capital to purchase equipment. This means that you can get the equipment you need, new or used, without the need for a huge investment. Some other benefits are:
- It can provide a safety net for unpredictability. Financing equipment can equally be the biggest expense that you will face as a business owner. Leasing offers you a safety net in the sense that your payments will be fixed, meaning you will be able to budget for it efficiently. The onus is on you to check the interest rate, fees and charges to see if it is affordable.
- Reduce the costs of repairs and maintenance. Choosing to purchase can prove to be costly as you still have to factor in repair and maintenance costs for new and used equipment. Leasing equipment can help you reduce or avoid these costs when they are still under warranty.
- Spread out costs. Instead of being faced with the daunting challenge of investing a lump sum of money you can break up costs according to your lease agreement.
You can keep your equipment updated. Leasing also means you will be able to keep your equipment in mint condition by being able to replace it with new equipment to keep your business running smoothly.
The pitfalls
It also pays to check the pitfalls that come with this option as leasing may not be suitable for your business. Speaking to a financial advisor can also let you see if it will be a finance option that is sustainable long term and whether it comes with potential tax benefits for your small business. Some of the pitfalls to consider with leasing are:
- You may not be able to lease all equipment. Depending on the leasing company you may find that you are not able to lease certain equipment such as cooking equipment, commercial range equipment, and furnisher to list a few due to its unavailability or due to the costs being too high for you to meet your repayments. This is where reading the fine print can work in your favour.
- It can come with a high interest rate. Since you will not be offering collateral against the loan you could end up paying a high interest rate. Using the equipment you are leasing as collateral to reduce the interest rate is something that is not possible since the equipment that does not belong to you.
- There may not be any benefits for early repayments. It is vital to check the fine print that comes with your lease agreement. This tends to outline if you will be able to buy the equipment as your own and whether you will be charged a penalty fee for paying off your loan early.