The Benefits of Leasing a Commercial Coffee Machine
Leasing a commercial coffee machine is a desirable option for several reasons. Both commercial bean to cup coffee machines and traditional espresso machines are available to lease with exactly the same options.
Purchasing a coffee machine outright, or renting one, are other popular alternatives. An outright purchase involves paying the entire cost of the machine upfront, as you would with any day-to-day transaction. Coffee machine rental involves paying a set monthly amount, as agreed between the customer and supplier, for a pre-determined period of time. This is usually a 24-month agreement. Leasing is very similar to renting but there are important differences, and it is these differences that make leasing a far more desirable option!
What is a commercial coffee machine lease?
When a customer leases a product, they enter into an agreement with the owner so that they can use the product. With regards to industrial coffee machines, the customer can use the commercial bean to cup coffee machines for a set monthly amount (usually paid to a leasing company hired by the coffee machine company).
Difference between a commercial coffee machine rental and lease?
There are two main ways in which leasing a coffee machine differs from a rental agreement. Firstly, when compared to other financial agreements, lease payments are very competitive in the finance industry. This makes leasing a great option for the customer, as it drives down the prices and rates. Lease agreements tend to be between 3 and 5 years, which allows the lender to recoup the cost of the machine and the interest on the lease.
The second and most important difference is the option for the customer to make a balloon payment, which is one further payment to own the machine outright at the end of the lease.
Renting a commercial coffee machine
A rental agreement for a coffee machine is usually for a shorter time period than a lease and is a popular choice for office coffee machines. At first glance, this renting can look like the better option, particularly if demand for coffee is uncertain or if the customer is unsure which machine is better suited to their needs. However, when compared to a lease, renting presents a much riskier proposition for the lender due to the shorter time period (typically 12 months). This means that lenders frequently exclude the option to rent from their portfolios. Those that do often charge much higher rates to offset the greater financial risk, which makes renting more expensive than leasing, even when the lease is only 12 months. Also, when the rental period ends the machine is returned to the lender, with additional charges incurred by the customer if the lender deems any wear and tear on the machine to be in excess of what would normally occur in the given time period.
Drawbacks of renting a commercial coffee machine
If outright purchase of a coffee machine is not possible, renting may be a viable option, as it allows you make smaller monthly payments, spreading the cost over a longer time period. This may also include maintenance, training and installation options. As there is no definite end to a rental, it is the most expensive option in the long term. It is often the case that customers forget about the mounting costs of their rental agreement and only realise how much money they could have saved with a lease when they look back at their rental payments. While they may want to switch to a lease at this point, unfortunately it is too late. Renting can also leave you vulnerable to things like paying interest on interest (known as compound interest). Also, the monthly rental payments are always much higher than a lease, because you are committing to a shorter time period. This means that the bank charges more due to the higher financial risk.
When you have a choice between renting a coffee machine or leasing it, there is no advantage in renting it. On a like-for-like basis, renting will always be more expensive due to the shorter time commitment (the amount varying from supplier to supplier) and when the period ends, unlike a leasing agreement, you will have no option to buy.
Who Can Lease Commercial Coffee Machines?
Leasing is available for your business if you are a homeowner with an average or better credit rating. If you are accepted, a lease will normally be the better option. If your business has been established for over three years and it has good credit, you can also be accepted for a lease. You will likely need a guarantor if you don’t fit these criteria. If you would like someone to guide you through this process, please don’t hesitate to contact us.
Unless you can put a coffee machine which has been bought outright through your annual plant and machinery allowance, it is not tax deductible. However, commercial coffee machine leases are 100% tax deductible (speak to your accountant for details). If you opt for a shorter lease, the monthly payments will be higher, but the lease will end sooner with the additional advantage of extending the lease at a lower monthly rate. Leasing a coffee machine is like buying one outright but with the costs spread out over a long period of time. This means that you will be able to start making profits quicker, as you won’t be hamstrung by a large one-off expense right at the start of your business adventure.
Take the following two examples:
1. An office coffee machine that can provide up to 150 coffees, hot chocolates or mochas per day for the staff.
The Franke A600
Outright purchase = £7,495 + VAT
Lease over 5 years = £37.49
Cost to provide 150 coffees per day on lease (Mon-Friday) = £0.29 per coffee
2. A UK Barista Championship coffee machine manufactured by a top Italian manufacturer.
The Spaziale S40
Outright purchase = £5,348 + VAT
Lease over 5 years = £27.52
Cost of machine per day (6-day week) = £4.57
Number of coffees to be sold at £2.85 to cover machine (cost of coffee £0.25 per cup) = 4.57/2.60 = 1.77 coffees per day to cover the lease cost
Ask yourself this, would giving your colleagues a coffee that would rival the local coffee shop for £0.29 be a great work incentive?
Or would having a UK Barista Championship coffee machine sell you just one more coffee per day? I would imagine the answer to both is a resounding, yes!
Finally, leasing can allow you to escape from a tight budget and means you don’t have to settle for a lower quality coffee machine. They hold their value well too, so it can be a great investment. With most coffee machines, a 3-year lease represents around half its life span, but they can last longer than 6 years if they are treated well.