Start with the vendor quote
Every equipment approval begins with a quote. It establishes what is being purchased, what it costs, and who is being paid. Lenders fund the vendor directly in most cases, which protects both sides and speeds up the release of funds.
Include delivery, installation, and freight on the quote. Those costs are financeable, and leaving them off means paying them from the operating account later.
Know which structure you are signing
Three structures cover almost every food service equipment transaction, and they differ in ownership and end of term treatment.
- /Equipment finance agreement: you own the equipment from day one and repay a fixed monthly amount.
- /Capital lease with a 1 dollar buyout: functionally a purchase, with ownership transferring at the end for a nominal amount.
- /Fair market value lease: lower payment, with the option to buy at market value or return the equipment at the end.
What underwriting actually reviews
For most tickets under 250,000, underwriting reviews the application, the equipment quote, and 3 months of business bank statements. Personal credit is checked, but the equipment carries meaningful weight because it can be recovered.
Time in business affects the term and the down payment more than it affects approval. A 9 month old restaurant can commonly finance a walk-in, just on a shorter term.
Timing matters more than rate on emergencies
A failed walk-in costs a restaurant inventory and revenue every day it stays down. The difference between a 3 day funding and a 10 day funding is usually larger than the difference between two rate quotes.
When the failure is not urgent, take the extra week to compare the total dollar cost of each offer rather than the monthly payment.
Calculator
Equipment payment and total cost
Enter the quote, the rate you were offered, and the term. The payment is the standard amortizing payment, and the total cost is what leaves the business above the amount financed.
Programs commonly cover 80 to 100 percent. Leave at 0 if none is required.
Use the rate on the written offer, not an estimate.
The arithmetic
payment = P x i / (1 - (1 + i)^-n), where P is the amount financed, i is the annual rate divided by 12, and n is the number of monthly payments. Total cost = (payment x n) - P.
Sources
- 1Amortizing payment formula: P x i / (1 - (1 + i)^-n)Standard time value of money identity. The same closed form used by the PMT function, with i as the monthly rate and n as the number of monthly payments.
- 2Bank prime loan rate, the base most business term financing is priced againstFederal Reserve, H.15 Selected Interest Rates. Published daily by the Federal Reserve. Enter the current prime rate when pricing a variable rate offer.
- 3Annual percentage rate definition, 12 CFR 1026.22Consumer Financial Protection Bureau, Regulation Z. APR is the nominal annual rate that discounts a payment stream back to the amount advanced. We solve it numerically from the payment schedule and multiply the periodic rate by the number of periods per year.
Estimates, not offers: Amounts, terms, and funding times are estimates based on programs commonly available in food service. Actual terms vary by program, lender underwriting, time in business, revenue, and credit profile. Nothing here is an offer of credit or a guarantee of approval.