The need to purchase or upgrade equipment is one of the most common expenses a business will encounter. In fact, it is necessary for enterprises to upgrade or avail new equipment as this improves productivity in the organization.
However, this can be an overwhelming idea for some entities like restaurants. Some equipment used by restauranteur cost a lot, and it is difficult to upgrade or avail new one, especially when the budget is limited. That is why some of them consider restaurant equipment financing or leasing, as this allows them to buy or improve their equipment without spending too much.
But to better understand financing or leasing, here are the following terms and fees you should be aware of.
- Interest Rates: The most expensive part of borrowing should be the interest rate. In general, the lower the interest rate, the better, but make sure you understand how and when it is applied.
- Origination Fee: The rate of interest should be the most expensive aspect of financing. In general, less is more, but make sure you understand how and when the interest rate is applied.
- Administrative Fee: This can be justified in a variety of ways by your equipment financer, but it is a cost of keeping your account open. It can be charged once or on a regular basis.
- Down Payment: The amount you are required to spend out of pocket for the equipment you are purchasing. This is common with equipment loans. There is usually no down payment with leases. However, you may be required to pay the first and last month’s payment in advance.
- Monthly Payment: The amount you are expected to pay each billing cycle, which is usually monthly. When it comes to leases, the larger your payment, the lower your residual.
- Residual: A sum remaining at the conclusion of your lease that you must pay if you choose to own your equipment. Your payments will be higher if your residual is low.