As a franchisee, you are a small business owner. Of...
When you have an equipment-heavy franchise, the items you need can really add to the cost of starting and running the business. To save money on the essential items you need for your franchise, here's what to know.
One way to start your equipment financing search is by speaking with the franchisor directly. Not only do they know exactly what equipment you need, but they may also have financing programs and deals in place with vendors to save you money and hassle. In addition, pay attention to what type of financing you are getting; equipment financing is better than general working capital loans. A general loan won't place as much value on the equipment that is securing it, so you'll end up overpaying if you go that route.
Leasing can save you a lot money. It's usually easier to get a lease than a loan, you may not need a down payment, and it's also more flexible. When you don't have to pay the full cost of the equipment upfront, it can help buffer your budget. A lease payment is also likely to be lower than a loan payment.
Operating and capital leases are the two main types of equipment leasing you'll see. The format that will work best for you depends on your franchise and needs.
With a capital lease, you'll lease the equipment for a short term (two to five years), make monthly payments and then pay a small sum at the end of the lease term to own the equipment. Under an operating lease, you'll lease the equipment for as long as you need it. Should you decide you wish to own the equipment, you can buy it for whatever its value is when the lease ends.
Generally speaking, an operating lease is preferred because it has lower monthly payments and you get to own the equipment at the end for less than the fair market value provided you negotiate that into the lease agreement at the start. This type of lease, however, can be harder to get than a capital lease. Operating leases usually require a strong personal credit score and documented business revenue.
You can finance used equipment instead of new items. While this is not ideal for items like tech equipment, it can work just fine for purchases such as cars and refrigerators.
Getting equipment for your new franchise doesn't have to be a very expensive venture. Consider the tips above and all your options before you decide what to do.