The options
| Route | Upside | Downside |
|---|---|---|
| Buy new, cash | Lowest total cost, warranty, full ownership | Ties up cash when opening costs are highest |
| Buy new, financed | Own it, spread payments | Needs credit; loan terms vary widely |
| Lease ($1 buyout) | Fixed payments, own it at the end | Total paid exceeds the price; you cannot cancel |
| Lease (FMV) | Lower payments, option to return or upgrade | Buyout price and return terms can surprise you |
| Buy used | Often a large discount on heavy stainless equipment | Little or no warranty, unknown history |
| Rent or supplier program | Service included, often tied to a supply contract | Pays more over time; locked to one supplier |
What to buy used, and what not to
Equipment with few moving parts and no refrigeration holds up well second-hand: stainless tables, shelving, sinks, many gas ranges and griddles, and hood-mounted items in good condition. Used prices can be a fraction of new.
Be careful with anything whose life depends on hidden parts or maintenance history:
- Refrigeration. Compressors wear out, and older units may use refrigerants being phased down. See commercial refrigeration.
- Combi ovens and steamers. Scale damage from untreated water is invisible from the outside. See combi ovens.
- Ice machines and dish machines. Same problem: scale and neglected cleaning.
- Anything without its data plate. The plate gives the model, serial, gas type and certification marks. Inspectors and service companies need it.
Check that used equipment still carries its NSF and safety listing marks, matches your gas type (natural gas or propane) and voltage, and that parts are still available.
$1 buyout or fair market value
The lease mechanics are the same as for office equipment; our copier leasing guide covers them in detail.
- $1 buyout lease. You pay the full cost plus financing over the term, then own the equipment for a nominal $1. It behaves like a loan. Suits equipment you will keep for its whole life: refrigeration, fryers, ranges, hoods.
- Fair market value (FMV) lease. Lower payments, and at the end you can return the equipment, renew, or buy it at a price set then. Suits equipment you may want to replace, such as a technology-heavy combi or POS hardware. Read how the end price is set, and the notice you must give to return rather than renew.
The clauses to read
- Non-cancellable. Most equipment leases cannot be ended early. If the restaurant closes, the payments continue. Many are "hell or high water" leases: you pay even if the equipment breaks.
- Personal guarantee. Lenders commonly require one from owners of new businesses. It puts your personal assets behind the lease.
- Automatic renewal. FMV leases often renew month to month, or for a year, unless you give written notice inside a window before the end.
- Fees. Documentation fees, insurance requirements, late fees and return shipping.
- Maintenance. A lease usually covers the money, not the service. Repairs are your job unless a separate service agreement says otherwise.
Tax and accounting
How a lease or purchase is treated for tax depends on the lease structure and current law. A $1 buyout lease is generally treated like a purchase, and businesses may be able to deduct equipment costs under provisions such as Section 179, subject to limits that change. Rules change often, so ask your accountant how a specific deal will be treated before you rely on a deduction.
Supplier programs and rebates
Some equipment arrives through supply contracts rather than leases: low-temperature dish machines from chemical suppliers, beverage equipment from drink suppliers, and oil management systems from oil suppliers. The equipment can be free or cheap because you commit to buying their product. Compare the product price against the open market, and read the term and exit conditions.
Whichever route you take, ENERGY STAR certified commercial food service equipment can qualify for utility rebates. Check with your local utility before ordering, since some programs require pre-approval or apply only to new equipment. Registers of certified equipment: refrigeration, dishwashers, fryers, griddles, ovens, steam cookers and hot food holding.
Before you sign
- Decide item by item: buy, lease or buy used.
- Get a cash price for each item before discussing payments.
- Calculate the total cost of any lease, including fees and buyout.
- Choose $1 buyout for equipment you will keep, FMV for equipment you may replace.
- Read the term, cancellation, guarantee and renewal clauses.
- Inspect used equipment: data plate, listing marks, gas type, voltage, parts.
- Confirm tax treatment with your accountant, and have a lawyer review large or long leases.
- Apply for utility rebates before the equipment is installed.