Do you know how to finance restaurant kitchen equipment?

Buying restaurant kitchen equipment outright can cost anywhere from $80,000 to $300,000 depending on the size of your operation and whether you're fitting out a cafe or a full-service restaurant. Equipment finance lets you spread that cost across fixed monthly repayments while keeping your working capital available for stock, wages, and the inevitable repairs that come with running a commercial kitchen.

Why restaurant owners use equipment finance instead of paying cash

Paying cash for kitchen equipment ties up funds you'll need for other parts of the business. Consider a cafe owner in East Melbourne fitting out a 60-seat venue who needs a commercial oven, two fridges, a dishwasher, and a coffee machine. The total comes to around $120,000. Using commercial equipment finance, they can secure the equipment with a deposit and spread the remaining loan amount across 36 to 60 months. This keeps $100,000 or more in the bank for fitout costs, initial stock, and the first few months of operating expenses before revenue builds.

Equipment finance also means you're not waiting to save the full amount before you can open or expand. If your lease is signed and your opening date is set, delaying equipment purchase by six months to build up cash can mean six months of lost revenue and lease payments with no income to offset them.

What equipment qualifies for commercial equipment finance

Most lenders will finance any equipment that's essential to running your restaurant and holds its value over time. That includes commercial ovens, ranges, grills, deep fryers, refrigeration units, freezers, prep tables, dishwashers, coffee machines, and exhaust systems. If the equipment is new or less than five years old and has a clear resale market, it's usually eligible.

Lenders generally won't finance small items like knives, utensils, or crockery because they don't hold value as collateral. But if you're buying a full kitchen fitout from a supplier as a package, they'll often include those smaller items in the overall loan amount as long as the bulk of the value is in the major equipment.

Chattel mortgage vs hire purchase for restaurant equipment

A chattel mortgage is the most common structure for buying restaurant equipment if you're operating through a company or trust. You own the equipment from day one, the lender holds a mortgage over it as collateral, and you make fixed monthly repayments over the loan term. At the end, you pay a residual (usually 10% to 20% of the original loan amount) and the mortgage is discharged. The key advantage is that both the interest and depreciation on the equipment are generally tax deductible, which makes it tax effective for most businesses.

Hire purchase works differently. The lender owns the equipment until you make the final payment, then ownership transfers to you. There's no residual to pay at the end, which can suit businesses that want to avoid a balloon payment. Monthly repayments are typically slightly higher than a chattel mortgage because you're paying off the full amount over the term. Hire purchase is often used by sole traders or businesses that prefer a simpler structure without a residual.

How lenders assess your application for kitchen equipment finance

Lenders want to see that your business can manage the repayments and that the equipment you're buying will generate income. If you're an established restaurant, they'll look at your trading history, bank statements, and current cash flow. If you're opening a new venue, they'll focus on your experience in the industry, your business plan, and any presales or bookings you've secured.

In a scenario where a chef with ten years of experience is opening their first restaurant in East Melbourne, the lender might ask for a detailed business plan, proof of the lease, evidence of equity in the fitout, and a deposit of 20% to 30% on the equipment. The chef's track record in the industry carries weight, but without trading history, the lender needs to see that the business model is sound and that there's enough capital to get through the first six months.

Structuring repayments to match your cashflow

Most restaurant equipment finance is structured over three to five years. A shorter term means higher monthly repayments but less interest paid overall. A longer term reduces the monthly repayments, which can help manage cashflow in the early months when revenue is still building.

If your business has seasonal fluctuations, some lenders will allow structured repayments where you pay more during peak months and less during quieter periods. This isn't standard, but it's worth discussing if your revenue is heavily weighted to certain times of the year. The interest rate you're offered will depend on your business's financial position, the age and type of equipment, and the loan term. Rates are typically higher than residential home loans but lower than unsecured business loans because the equipment itself acts as collateral.

When to finance new equipment vs upgrading existing equipment

Financing new equipment usually gives you access to better loan terms because the equipment holds its value and has a longer usable life. If you're buying a brand-new commercial oven or refrigeration system, lenders will generally offer higher loan amounts and longer terms because the equipment is less likely to break down or lose value quickly.

Upgrading existing equipment can still be financed, but if the equipment you're replacing is old or nearing the end of its life, the lender may reduce the loan amount or ask for a larger deposit. If you're replacing a ten-year-old oven with a five-year-old refurbished model, the lender will want to see that the equipment still has enough usable life to cover the loan term. In our experience, businesses that finance upgrades often combine the new equipment with a small working capital component to cover installation and any downtime during the changeover.

Tax deductions and how they apply to restaurant equipment

Under most circumstances, the interest you pay on equipment finance is tax deductible as a business expense. If you're using a chattel mortgage, you can also claim depreciation on the equipment itself, which reduces your taxable income each year. The rate of depreciation depends on the type of equipment and the Australian Taxation Office's effective life guidelines, but most commercial kitchen equipment depreciates over five to ten years.

This makes equipment finance more tax effective than paying cash, because you're spreading the cost and claiming deductions on both the interest and the decline in value. If you're considering a hire purchase, the repayments are treated differently for tax purposes, so it's worth confirming the structure with your accountant before you commit.

Three Plus Me Finance can connect you with equipment finance options from lenders across Australia. Call one of our team or book an appointment at a time that works for you.

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