Equipment Financing for Restaurants: Your Complete Guide to Funding Kitchen Buildouts

A commercial kitchen buildout runs $150,000 to $500,000. That range swings based on location, size, and whether you're converting raw space or renovating an existing kitchen. Most restaurant owners don't have that kind of cash sitting around. They shouldn't tie it up even if they do.

Equipment financing lets you spread that cost across 2 to 7 years while keeping your working capital free for the expenses that kill restaurants in their first year — payroll, food costs, and the surprises that always show up.

This guide breaks down exactly how equipment financing works for restaurants, what lenders look for, how to structure deals that protect your cash flow, and the mistakes that cost owners thousands in unnecessary interest.

What Counts as Restaurant Equipment Financing?

Equipment financing is a loan or lease specifically tied to the gear you're buying. The equipment itself serves as collateral, which makes approval easier and rates lower than unsecured business loans.

For restaurants, this covers:

• Cooking equipment: Commercial ranges ($3,000–$30,000), convection ovens ($5,000–$50,000), fryers ($2,000–$15,000), charbroilers, steamers, and tilting skillets
• Refrigeration: Walk-in coolers ($5,000–$15,000), walk-in freezers ($8,000–$20,000), reach-in units, prep tables with refrigerated bases
• Ventilation and hood systems: Type I and Type II hoods with fire suppression ($15,000–$50,000 installed)
• Dishwashing: Commercial dishwashers ($3,000–$30,000), including high-temp and low-temp models
• Smallwares and prep: Food processors, mixers ($500–$10,000), slicers, and prep stations
• Front-of-house: POS systems ($2,000–$15,000), furniture, bar equipment, espresso machines

[CALLOUT-TIP: Hood and ventilation systems are the most expensive single line item in most kitchen buildouts. Finance these separately if possible — specialized lenders offer better terms than general equipment lenders for HVAC/ventilation work.]

The National Restaurant Association reports that the average new restaurant spends $115,655 on kitchen equipment alone (source). That doesn't include installation, which adds 15–25% to your total cost.

Equipment Loans vs. Equipment Leases: Which Fits Your Restaurant?

Two paths. Each has clear advantages depending on your situation.

Equipment Loans

You borrow the money, buy the equipment, and own it outright once the loan is paid off. The equipment secures the loan.

Typical terms for restaurant equipment loans:

• Interest rates: 6–14% (varies by credit, time in business, equipment type)
• Loan terms: 3–7 years
• Down payment: 10–20%
• Funding speed: 3–10 business days

Ownership matters for restaurants because commercial kitchen equipment holds value. A well-maintained Rational combi oven or Hoshizaki ice machine retains 40–60% of its value after five years. When you own it, that residual value is yours.

Equipment Leases

You make monthly payments to use the equipment. At the end of the lease, you either return it, buy it at fair market value, or buy it for $1 (depending on the lease structure).

Common lease structures for restaurants:

• $1 buyout lease: Functions like a loan — higher monthly payments, but you own the equipment for a dollar at the end. Best for long-lasting equipment like walk-ins and hood systems.
• Fair market value (FMV) lease: Lower monthly payments, but you'll pay market price to keep the equipment. Works for technology that evolves — POS systems, certain cooking tech.
• 10% purchase option lease: A middle ground. Payments fall between $1 buyout and FMV leases.

[CALLOUT-INSIGHT: Match your lease type to equipment lifespan. Use $1 buyout leases for equipment lasting 10+ years (walk-ins, hoods, stainless steel tables). Use FMV leases for equipment you'll replace within 5 years (POS systems, certain cooking technology). This approach keeps your total cost of ownership lowest across your full equipment portfolio.]

Quick Comparison

The Real Cost of Restaurant Equipment Financing

Interest rate alone doesn't tell the full story. Here's what a $200,000 equipment package actually costs under different scenarios:

Scenario 1: Equipment Loan at 8% for 5 years

• Monthly payment: $4,055
• Total paid: $243,321
• Total interest: $43,321
• You own: $200,000 in equipment with remaining useful life

Scenario 2: FMV Lease at equivalent rate for 5 years

• Monthly payment: $3,400
• Total paid: $204,000
• Buyout at end: $40,000–$60,000 (fair market value)
• Total cost if you buy: $244,000–$264,000

Scenario 3: $1 Buyout Lease for 5 years

• Monthly payment: $4,200
• Total paid: $252,001
• You own: $200,000 in equipment for $1

The tax picture changes the math. Under Section 179, you can deduct the full purchase price of qualifying equipment in the year you buy it — up to $1,160,000 for 2023 (IRS Section 179). Bonus depreciation lets you deduct 80% of the cost for equipment placed in service in 2023 (stepping down 20% per year through 2027).

A $200,000 equipment purchase with Section 179 deduction saves a restaurant in the 24% tax bracket $48,000 in federal taxes that year. That's more than the total interest on the loan.

[CALLOUT-TIP: Talk to your CPA before signing any equipment financing deal. The difference between a loan and a lease changes your tax deduction strategy. Getting this wrong can cost $10,000–$30,000 in missed deductions on a typical kitchen buildout.]

What Lenders Look For in Restaurant Equipment Applications

Restaurants are classified as high-risk by most lenders. The often-cited stat — 60% of restaurants fail in the first year — is overstated. Data from a study published by Cornell Hospitality Quarterly shows the actual first-year failure rate sits closer to 30% (source)). Still high enough that lenders pay attention.

Here's what moves the needle on approval and rate:

Credit Score Thresholds

• 720+: Best rates (6–8%), widest lender selection, lowest down payments
• 680–719: Good rates (8–11%), most lenders will approve
• 640–679: Moderate rates (11–16%), fewer lenders, higher down payments
• Below 640: Limited options, rates above 16%, may need additional collateral

Time in Business

• 3+ years: Easiest approvals, best terms
• 1–3 years: Most lenders will work with you if financials are solid
• Under 1 year / startup: Toughest category — expect personal guarantees, higher rates, and 20–30% down payments

Financial Documents You'll Need

1. Personal tax returns (2 years)
2. Business tax returns (2 years, if applicable)
3. Profit and loss statements (year-to-date and prior year)
4. Bank statements (3–6 months)
5. Equipment quotes (itemized, from vendors)
6. Business plan (for startups — must include detailed financial projections)
7. Lease agreement for your restaurant space (lenders want to see lease term matches or exceeds equipment loan term)

That last point catches people off guard. If you have 3 years left on your building lease and you're financing equipment for 5 years, lenders get nervous. They're thinking: what happens to our collateral if this restaurant closes because the landlord doesn't renew?

Financing a Full Kitchen Buildout: Structuring the Deal

A complete kitchen buildout involves more than dropping equipment into a space. You're dealing with construction, electrical and plumbing rough-ins, ventilation, fire suppression, and health department requirements — all before a single piece of cooking equipment gets installed.

The Phased Financing Approach

Smart operators break buildouts into distinct financing buckets. This approach — aligned with the Problem-Agitate-Solution framework — starts by identifying the core challenge: a single massive expense that doesn't fit neatly into one financing product.

Phase 1: Space preparation ($30,000–$100,000)

• Construction and build-out costs
• Best funded through: SBA 504 loan, commercial construction loan, or landlord tenant improvement allowance
• Timeline: 4–12 weeks before equipment arrives

Phase 2: Major equipment ($75,000–$250,000)

• Cooking equipment, refrigeration, ventilation, dishwashing
• Best funded through: Equipment loan or $1 buyout lease
• Timeline: Order 8–12 weeks before planned opening

Phase 3: Smallwares and front-of-house ($15,000–$50,000)

• POS systems, furniture, small equipment, opening inventory
• Best funded through: Business line of credit or short-term working capital loan
• Timeline: 2–4 weeks before opening

Why Phased Financing Saves Money

Bundling everything into one loan sounds simpler. It's also more expensive. Here's why:

A single $300,000 equipment loan at 10% for 5 years costs $76,452 in interest. That same $300,000 split across three products — a $100,000 SBA loan at 6.5% for 10 years, a $150,000 equipment loan at 8% for 5 years, and a $50,000 line of credit at 12% paid off in 18 months — costs roughly $62,000 in total interest. You save $14,000 and gain flexibility.

SBA Loans for Restaurant Equipment

Two SBA programs work well for restaurant equipment and buildouts.

SBA 7(a) Loans

• Max amount: $5 million
• Equipment terms: Up to 10 years (or useful life of equipment)
• Rates: Prime + 1.5–2.75% (currently around 9–10%)
• Down payment: 10–20%
• Best for: Combined equipment and working capital needs

SBA 504 Loans

• Max amount: $5.5 million
• Structure: 50% from a bank, 40% from a Certified Development Company (CDC), 10% from you
• Rates: Below-market fixed rates on the CDC portion
• Best for: Large buildouts that include real estate or major fixed assets
• Catch: Slower process (60–90 days), more paperwork

The SBA guarantees a portion of these loans, which is why banks will lend to restaurants they'd otherwise turn down. The trade-off is speed and paperwork. An SBA loan takes 30–90 days from application to funding. Equipment financing through a direct lender takes 3–10 days.

For detailed SBA program information, visit SBA.gov's loan programs page.

The Equipment Financing Application: Step by Step

Here's what the process looks like from first call to funded:

Day 1–2: Application Submit your application with financial documents. Most online lenders use a single-page application. Banks and SBA lenders require more.

Day 2–5: Underwriting The lender reviews your credit, financials, and equipment quotes. They may request additional documents or clarification.

Day 5–7: Approval and Terms You receive a term sheet or loan offer. Review the interest rate, term length, payment schedule, prepayment penalties, and any personal guarantee requirements.

Day 7–10: Documentation and Funding Sign loan documents. Funds are either sent to you or paid directly to the equipment vendor. Some lenders require vendor payment to protect their collateral interest.

[CALLOUT-WARNING: Watch for prepayment penalties. Some equipment lenders charge 2–5% of the remaining balance if you pay off early. On a $150,000 loan with 3 years remaining, that's $3,000–$7,500 you'd owe just for paying ahead of schedule. Ask about this before signing.]

Common Mistakes That Cost Restaurant Owners Money

Mistake #1: Financing New When Used Equipment Works

A new Rational iCombi Pro 20-full-size retails for roughly $38,000. A certified refurbished unit from a reputable dealer runs $22,000–$26,000. Both come with warranties. Financing the new unit at 8% for 5 years costs you $46,246 total. The refurbished unit costs $26,788–$31,685.

You save $14,500–$19,500 on a single piece of equipment. Apply that thinking across a full kitchen and you're looking at $40,000–$80,000 in savings.

Reliable sources for used commercial kitchen equipment include Restaurant Equipment World and regional dealers who offer warranties.

Mistake #2: Ignoring the Total Cost of Ownership

A cheap Chinese-manufactured reach-in refrigerator costs $2,000. A Traulsen runs $5,500. The cheap unit needs a compressor replacement at year 3 ($800 + labor), burns 40% more electricity ($300/year extra), and dies at year 5. The Traulsen runs for 12–15 years.

Over 10 years:

• Cheap unit: $2,000 + $2,000 (replacement) + $800 (repair) + $3,000 (extra energy) = $7,800
• Traulsen: $5,500 + $0 (no replacement) + $0 (minimal repairs) + $0 (efficient) = $5,500

Finance the better equipment. It's cheaper in the long run.

Mistake #3: Not Negotiating Equipment Packages

Dealers offer discounts of 8–15% when you buy a full kitchen package versus individual pieces. On a $150,000 equipment order, that's $12,000–$22,500 off the top — before you even start talking about financing terms.

Get quotes from at least three dealers. Use competing quotes as negotiation tools. This is standard in the industry, and dealers expect it.

Mistake #4: Mismatching Loan Terms to Equipment Life

Financing a POS system for 7 years doesn't make sense when the technology is obsolete in 4. Financing a walk-in cooler for only 3 years means unnecessarily high payments on equipment that lasts 15–20 years.

Match the financing term to realistic useful life. This principle, central to the Problem-Agitate-Solution framework, forces you to identify the real problem — cash flow mismatch — before jumping to a solution.

Building Your Equipment List: What to Finance vs. What to Buy Outright

Not everything should be financed. The carrying cost of interest makes financing small purchases inefficient.

Finance these (high cost, long life):

• Walk-in coolers and freezers
• Hood and ventilation systems
• Combi ovens and commercial ranges
• Dishwashers
• Ice machines

Buy outright (low cost, short life, or consumable):

• Smallwares under $1,000 (pots, pans, utensils)
• Sheet pans and hotel pans
• Cutting boards and prep tools
• Initial supply of disposables

Case-by-case:

• POS systems (lease if you want to upgrade every 3–4 years, buy if you're committed to a platform)
• Espresso machines (high-end La Marzocca or Slayer machines hold value well — worth financing)
• Bar equipment (ice wells, speed rails, and glass washers are inexpensive; cocktail-specific equipment like blast chillers may be worth financing)

Working with FundLocal for Restaurant Equipment Financing

Restaurant owners waste weeks calling banks, filling out applications, and getting rejected — all because the lender doesn't understand restaurant economics. A 30% food cost, 30% labor cost, and 5–10% net margin profile doesn't look great to a lender who's used to evaluating software companies.

FundLocal matches you with lenders who already understand the restaurant business. No runaround. No explaining why your gross margins look different from a retail store's.

Your Equipment Financing Action Plan

Here's your step-by-step checklist to get funded and get building:

This week:

• Pull your credit score (free at AnnualCreditReport.com)
• Gather 2 years of tax returns and 6 months of bank statements
• Create a detailed equipment list with prices from at least 2 vendors

Next week:

• Get 3 competing equipment quotes from dealers
• Negotiate package pricing (aim for 10%+ discount)
• Apply to 2–3 lenders (or use FundLocal to get matched with the right ones)

Within 30 days:

• Compare loan offers on total cost — not just monthly payment
• Confirm your building lease term covers or exceeds your loan term
• Meet with your CPA to plan Section 179 and depreciation strategy
• Sign and fund

Every week you spend deliberating is a week of rent you're paying on a space that isn't generating revenue. The restaurant owners who succeed aren't the ones who find the perfect financing deal. They're the ones who get funded, get built, and get open.

The equipment financing framework follows the Problem-Agitate-Solution structure: define the cash gap clearly, understand how delays compound costs, then execute the financing strategy that matches your timeline and budget.

Your kitchen won't build itself. Start today.