Do you know how to finance restaurant equipment?

Financing restaurant equipment spreads the cost over time while preserving working capital

Restaurant equipment represents one of the largest upfront costs when launching or upgrading a hospitality business. Commercial ovens, refrigeration units, dishwashers, and food preparation systems can easily exceed $100,000 before you've plated a single dish. Equipment finance allows you to acquire what you need now and repay the cost through fixed monthly repayments, typically over terms of three to five years. This approach keeps your working capital available for stock, wages, and the inevitable surprises that come with running a food business.

Most equipment finance structures use the equipment itself as collateral, which means you don't need to offer property or other assets as security. The lender holds an interest in the equipment until the final payment is made. In our experience, this arrangement works particularly well for restaurant operators who are leasing their premises and don't have commercial property to offer as security.

Chattel mortgage structures suit profitable operators with consistent income

A chattel mortgage is one of the most common finance structures for purchasing restaurant equipment outright. You own the equipment from day one, the lender registers a mortgage over it, and you repay the loan amount plus interest through regular instalments. Once the loan is repaid, the mortgage is removed and you own the equipment without any further obligations.

Consider a cafe operator purchasing a commercial espresso machine, grinder, and refrigeration unit totaling $45,000. Under a chattel mortgage, the business owns the equipment immediately and can claim depreciation on the full purchase price each year. The interest paid on the loan is also tax deductible. At current variable rates, fixed monthly repayments might sit around $900 over a five-year term, though exact amounts depend on your lender and credit profile. The tax deductions help offset the repayment cost, making the net impact on cashflow more manageable than the gross payment figure suggests.

This structure works particularly well for established businesses with consistent income and a clear tax liability. If your business is still building revenue or operating at a loss, the tax benefits become less relevant and other structures may be more suitable.

Hire purchase arrangements transfer ownership at the end of the term

Under a hire purchase agreement, you effectively rent the equipment with an option to purchase it at the end of the lease. You don't own the equipment during the repayment period, but once the final payment is made, ownership transfers to you automatically. This structure tends to suit businesses that want to keep the equipment long-term but prefer to defer ownership for accounting or tax planning reasons.

The key difference from a chattel mortgage is timing. With hire purchase, you can't claim depreciation during the life of the lease because you don't yet own the asset. However, the full repayment amount, including both principal and interest, is generally tax deductible as a business expense. For some operators, this delivers a more useful tax outcome than depreciating the asset over several years.

Operating leases preserve capital and allow regular equipment upgrades

An operating lease differs from both chattel mortgage and hire purchase in that you never intend to own the equipment. You lease it for a set period, make regular payments, and return it at the end of the term. This structure suits operators who want access to the latest technology without committing to long-term ownership, particularly for equipment that becomes obsolete quickly or requires frequent upgrades.

Restaurant operators using this approach often apply it to point-of-sale systems, computer equipment, or automation equipment where newer models offer meaningful efficiency gains every few years. At the end of the lease, you can upgrade to newer technology without needing to sell or dispose of outdated equipment. The downside is that you're making payments indefinitely if you continue leasing, whereas a chattel mortgage or hire purchase eventually concludes with full ownership.

Operating lease payments are fully tax deductible as an operating expense, and because you're not purchasing an asset, the equipment doesn't appear on your balance sheet. For businesses managing debt covenants or preparing for external investment, this can be a relevant consideration.

Lenders assess serviceability based on trading history and forward projections

When you apply for commercial equipment finance, lenders assess your ability to service the repayments based on your business income. For established restaurants, this typically means providing recent financial statements, tax returns, and management accounts showing consistent revenue and profit. If you're purchasing equipment as part of a new venture, lenders will ask for detailed projections, a business plan, and evidence of relevant industry experience.

As an example, a restaurant operator looking to expand their kitchen with a $60,000 commercial oven and ventilation system would need to demonstrate that their current revenue can comfortably cover the additional monthly repayment. Lenders typically look for a debt service coverage ratio above 1.2, meaning your income exceeds your total debt obligations by at least 20%. If your business is seasonal, they'll assess your cashflow across the full year rather than relying on peak trading periods.

Most lenders will also require a deposit, usually between 10% and 30% of the equipment cost. This reduces their risk and demonstrates your commitment to the purchase. Some lenders offer 100% finance for specific equipment types or borrowers with particularly strong financials, but this is less common for restaurant equipment due to its specialised nature and limited resale market.

Tax deductions apply differently depending on the finance structure you choose

The tax treatment of your equipment purchase depends on which structure you use. With a chattel mortgage, you own the equipment and can claim depreciation as well as the interest component of each repayment. Depreciation rates for commercial kitchen equipment typically sit between 20% and 40% per year depending on the asset type, meaning you can write off a significant portion of the purchase price annually.

With hire purchase, the entire repayment, both principal and interest, is generally tax deductible. This delivers a larger deduction in the early years compared to a chattel mortgage, which can suit businesses with high tax liabilities looking to reduce assessable income quickly.

Operating lease payments are fully deductible as an operating expense. You can't claim depreciation because you don't own the asset, but the deduction is straightforward and reflects the true cost of using the equipment during that financial year.

Your accountant should be involved before you commit to any structure. The most tax effective equipment finance option depends on your business structure, profitability, and broader financial position, not just the type of equipment you're purchasing.

Finance terms typically range from two to seven years depending on equipment lifespan

Most restaurant equipment finance agreements run between three and five years. This timeframe aligns with the useful life of most commercial kitchen assets and ensures the equipment is still functional and valuable when the loan concludes. High-value items like commercial refrigeration systems or industrial ovens may justify longer terms, while smaller items like food processing equipment or point-of-sale systems are often financed over shorter periods.

Longer terms reduce your monthly repayment but increase the total interest paid over the life of the lease. Shorter terms have the opposite effect. The decision should be driven by your cashflow capacity and how long you expect the equipment to remain productive. Financing a $30,000 commercial dishwasher over seven years might leave you making payments on equipment that's already been replaced, which makes little financial sense.

Some lenders offer flexible repayment structures, including seasonal payment schedules for businesses with variable income. If your restaurant experiences quieter winter months, you might arrange higher repayments during peak summer trading and reduced payments during the off-season. This kind of flexibility helps you manage cashflow without defaulting during predictable low-revenue periods.

Comparing lenders requires more than just comparing interest rates

When assessing finance options for restaurant equipment, the interest rate is only one component of the overall cost. Application fees, ongoing account-keeping fees, early repayment penalties, and documentation charges all affect the total amount you'll pay. Some lenders charge higher upfront fees but offer lower rates, while others have minimal fees but slightly higher interest.

You should also consider the lender's experience with hospitality businesses. A lender familiar with restaurant operations will understand the seasonal nature of your income, the resale value of commercial kitchen equipment, and the typical lifespan of different asset types. This understanding often translates into more realistic serviceability assessments and more appropriate loan structures.

Flexibility matters too. Some lenders allow you to make additional repayments without penalty, which can save significant interest if you have a particularly strong trading period. Others lock you into a fixed schedule with high exit fees if you want to refinance or pay out the loan early. If you're planning to expand or refinance within a few years, a more flexible arrangement may be worth a slightly higher rate.

Call one of our team or book an appointment at a time that works for you. We can help you assess which finance structure suits your situation and connect you with lenders who understand the specific demands of restaurant equipment purchases.

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