You’ve just come home from your coffeehouse job when restaurant equipment financing pops into your head. You have to admit, the idea of restaurant equipment financing or even restaurant equipment leasing is sounding more and more appealing these days. Especially since with your own coffee shop you can build your own menu and make your own hours. But as you sit down to think about what it might take to open your own coffee house you wonder, “How do I avoid restaurant financing scams? I don’t want to do this unless I know I’m getting a fair deal.”
If you’re wanting to start your own restaurant and are wondering what scams to avoid, read this blog to find out more.
1. The Calculator
One of the first things you might run into when considering restaurant equipment leasing or restaurant equipment financing is the company calculator. These calculators are usually on the lending company’s website and allow you to punch in a few numbers to get an estimate of what you could pay.
While this sounds like a great idea, these calculators often give out unrealistic numbers. Companies who use these types of tools know that people won’t proceed further if they numbers they get are too high. So they tweak the calculating tools to show easy payments when really, the actual payments could be as much as 50% more than what’s flashing on the screen.
The hard truth is there are a lot of different factors that go into what you could pay. No matter how enticing those “calculated” numbers are, it’s always best to speak with a reputable finance company about your financial needs to get the real sense of what you’d pay.
2. The “Proposal”
This tactic is a real sneaky one. It’s usually in the form of a letter that’s written like you’ve been approved for financing. But take a closer look at the fine print and you’ll see that it’s not actually an approval for restaurant equipment financing; it’s a letter looking for a commitment from the you: the business owner. It’s a very common practice that Equipment Financing/Leasing companies will issue a formal-looking letter that will outline the approval terms, but you will notice they are also looking for an up-front commitment fee. Some companies rely heavily on this revenue source; however, we do not!
We will never ask you to pay us directly; however, there are times – depending on the bank or lender we may use – that we will require a commitment fee, but these are typically for larger transactions or very challenging transactions.
The worst part? Some companies will ask for money to back out of the deal. That’s right – some companies will try to charge you a cancellation fee! Not us! Again, we will never ask you to pay our company, nor pay us to cancel your transaction. If you’re not happy with what we have offered, we wouldn’t expect you to proceed.
Suppose this for a second. You see one of these letters and decide to move forward. Then, after a closer look at the deal, you realize that not only are the payments higher than you expected, but you will also have to pay money to officially cancel everything.
Read the fine print.
We’ve heard stories from our clients about how they were swindled out of up-front monies they paid their last finance company, and if they wished to cancel their file, they kept those funds.
There are also letters that trick money out of you by claiming it’s for the first and last month. This is standard for actual lease/equipment finance agreements, but not for proposals. So unless you have extensive experience looking at proposals like these, it’s best not to go with them. You could make unneeded payments in the end that you can’t get back.
3. Mentioning Rates in Leases
If you see a company talk about leasing rates, run. Restaurant equipment lease agreements usually don’t mention rates because they don’t need to. Loan and other finance agreements do. But many dishonest companies looking to make money bank on the fact that customers don’t know this. So they’ll blurt out any rate that gets customers excited. If it sounds too good to be true, it probably is.
“If I shouldn’t worry about rates, how do I know what they’re offering me is doable?”
Equipment Financing/Leasing will not use interest rates. Our industry uses what is called “factor rates.”
However, the more important issue should be the payment amount and if you feel you can debt service the liability. Focus on the monthly payment. If it’s more than you expect to make in a month, it’s time to look elsewhere.
4. Prepayment Penalties
“But what if I want to pay off things earlier anyway?”
If you really want to pay this off sooner, consider short-term financing. You will still get to build credit and have a repayment schedule that suits you.
Get Restaurant Equipment Financing with First Capital today!
First Capital Business Finance is proud to offer a wide selection of programs to our customers. To learn more about our restaurant equipment financing rates and find out what you qualify for, call us at 888-510-3573 to speak with one of our knowledgeable advisers. It’ll only take a few minutes to find the solutions that fit you and your business, so call us today!
How to Avoid Restaurant Equipment Financing Scams | First Capital Business Finance