Financing anything, whether it’s a low value item or something of much higher value like a car is subject to some form of risk. Of course, it is less likely someone will default on the repayments of a low value item compared to something that costs thousands of dollars but it can happen.
The equipment used in the food services and restaurant industry is notoriously expensive, and certain equipment can cost several thousand dollars alone. As the equipment is specialist in its nature, you simply can’t compare say, a domestic dishwasher to a high-powered commercial grade dishwasher as the difference in capabilities, performance and ultimately price are like night and day.
It almost goes without saying that there isn’t really “cheap” restaurant equipment, as it has to be fit for purpose in a commercial environment. This means that the price point of even entry-level models of equipment are naturally high. According to Lowes, the typical price for a standard single rack commercial dishwasher is around $3,000. However, when you look at options like a conveyor dishwasher, a high temperature model could cost north of $50,000.
Even at the low end, $3,000 is a lot of money, and it’s essential that finance companies pull potential customers’ reports and history to ascertain whether they will be able to afford the repayments.
The equipment needed for the restaurant business varies, and a customer buying one piece of equipment will likely need to purchase other equipment too. For example, a customer may need a commercial dishwasher, commercial oven but also equipment related to non cooking aspects of the restaurant such as POS (point of sale systems). These typically require a monthly subscription in addition to a one off hardware cost in some cases.
So, the requirements for a restaurant can mean equipment that costs run in to the tens of thousands of dollars, and while a customer may me able to manage a lower value item/monthly subscription for a POS system, it’s important to have a look at their credit history in detail as they may be at higher risk of defaulting on more mid to high range equipment where the value is much higher.
At Soft Pull Solutions, we offer much more than just credit report services. There are additional factors than just a credit report that finance companies should take into account. For example, ID verification is very important, as well as taking any liens into consideration. Existing judgments such as child support will also affect a borrower’s ability to repay their loan.
The restaurant business has always been high risk, and has a very high rate of failure. One of the reasons for this is that there is almost always a high initial capital outlay before the first diner even walks through the door, not to mention high operating costs such as staff, rent, produce, utilities and maintenance. Many restaurants can take a few years to recover their initial costs, so pulling credit on a restaurant owner/business is always necessary. Whilst lenders understand that a restaurant business can take a while to become profitable, a poor credit score or repayment history combined with the generally high risk nature of the business can mean that, for some candidates, defaulting on equipment repayments is more likely. This is also because in the event of the business struggling, money towards rent and staff salaries will be prioritized.
As we have seen, there are several reasons why companies who offer financing for restaurant equipment should pull the credit history and reports of potential customers.
The complex and therefore high cost nature of restaurant equipment means that the entry point of even basic equipment is high. In addition to this, those seeking to finance restaurant equipment are likely to require several high value and crucial pieces of equipment which they simply cannot operate without. This adds to their potential borrowing amount and without pulling their credit history, it can be difficult to decide exactly how much they can afford to borrow without being at risk of missing payments.
Finally, restaurants are a tough business and it is likely that those seeking to borrow money to purchase equipment have possibly already borrowed some money to start their new business. The fact that there are high fixed and variable costs to running a business all come into play when it comes to a borrower’s ability to pay.
At Soft Pull Solutions, we are able to provide more than just credit history information in order to help finance companies get the full picture and make the best decision on the credibility of a borrower as well as how much to lend them.