Commercial Coffee Machine Finance Options: Lease, Rent or Purchase

Buying a commercial coffee machine can be a complex process, and with most coffee suppliers, is not as simple as adding a machine to a basket and clicking ‘checkout’.

When purchasing a coffee machine for a business, there are a number of different purchase agreements and finance options that can be explored by both yourself and the wholesale coffee supplier.

As a coffee machine supplier, we’ve discovered the positives and negatives for each type of finance agreement, when they are best suited, and which to avoid like the plague. We want you to know about all of the options available to you.

So, in this blog post, we’ll provide our unbiased opinions on the various coffee machine purchase options that we regularly come across so you can make the best decision for your business.

Leasing a Coffee Machine

So just a quick explainer on how leasing a coffee machine works. Maybe you’re looking around on our website for an espresso machine and you find a model that is perfect for your needs, nothing more and nothing less. But, you don’t quite have the cash flow or enough room in your capital expenditure budget to buy the machine outright. So, instead, you decide to lease it and spread the costs out over term.

The first thing we’ll discuss with you and advise on is how long you’re looking to lease the machine for. This will typically be 3 to 5 years with shorter contracts making for higher regular payments, longer contracts leading to lower regular payments.

We’ll then start working with our trusted leasing provider who will be funding the process, and we’ll work with them to handle all of the paperwork, conduct credit checks and negotiate terms. The lease provider will take on the upfront cost of the machine, but we manage the entire process to help you get the best rates possible and handle all of the communications and paperwork.

For a full explainer on the process behind a lease application for coffee equipment, read our Business Owner’s Guide to Smart Coffee Equipment Leasing.

The Downsides to Leasing a Coffee Machine

• Total payments will be greater for having the privilege of paying over time.
• Locks you into a long-term contract that typically requires a full payment on early-exit.
• You’ll be making payments towards a machine that is owned by another business.

The first downside of a lease agreement is that total payments will be greater over time. The lease company is providing you with a service and taking on the upfront cost themselves. You’ll pay for this service over the length of the contract by paying slightly more than the listed cost of the machine after the 3 to 5 year period.

The second downside is that a lease locks you into a long term contract. It’s a common misconception but if you want to leave the contract early, you can’t simply give the machine back and stop paying. Instead there will be early exit payments, and so you lose a little bit of the freedom that you could have had by purchasing the machine outright.

The third downside is that you don’t automatically get to keep the machine at the end of the contract, because it’s then technically owned by us the supplier. However, I’ll caveat this point by saying that, at the end of the contract, our customers are given the choice to keep the machine either through ownership by purchasing it for a small fee, or by re-leasing the machine with us at a lower price.

The final issue to consider is that new businesses may not be eligible for a lease contract. The leasing company will do their due diligence and perform a credit check on your business, so a company less than three years old without much credit history may struggle getting approval. In this situation we would typically recommend either getting in touch with your bank and applying for a loan, to have another look at the different finance options available to you, or even look for more affordable or secondhand equipment if necessary.

The Benefits of Leasing a Coffee Machine

• Spreads the cost of the machine over a long period of time.
• No large upfront payment affecting your cash flow.
• Lease payments can be offset against corporation tax claiming up to 19% back.
• Rates of borrowing are currently very competitive.

So, definitely a few downsides to consider going down the lease route, but there are also some attractive positives.

Firstly, and probably the main benefits are that you can avoid avoid the large upfront payment and spread the cost of the machine over time. These are massive selling points for businesses with a low cash flow or capital expenditure budget.

There’s also other financial benefits including your ability to offset the lease payment against corporation tax and claim up to 19% of the payments back.

Finally is that a lease agreement provides you with the option to either own, upgrade or easily return the machine at the end of the lease. So if, in hindsight, the machine wasn’t quite up to spec for your needs or was more than you needed and you can afford to downgrade, you can easily give it back and move on to something different. Or if you are happy with the machine, you can purchase it from us for a small fee, or choose to re-sign a new lease and keep working with us getting support in terms of barista training and looking after your machine.

Purchasing a Coffee Machine Outright

 So, in comparison to a lease agreement, purchasing a coffee machine is a little easier to understand.

Once you’ve compared your options and made a decision on both the machine and the supplier you want to go with, just get in contact with them and they’ll send you an invoice. Once it’s paid, they’ll make a purchase order to the manufacturer and schedule in the installation, then you can typically expect to be up and running, for us at least, within 4 to 6 weeks. The supplier will usually get a discount from the manufacturer, so you should end up paying close to the recommended list price for the machine.

The Positives to Purchasing a Coffee Machine Outright

• The coffee machine is yours, immediately.
• Paying upfront means you’ll save in the long-term with no interest payments.
• Ownership of a positive commercial asset.
• VAT can be reclaimed as a business expense.
• No long-term commitments or contracts.

There are essentially two main benefits to purchasing your coffee machine upfront. Firstly is that the coffee machine becomes yours straight away, and therefore counts as a positive commercial asset (this has the additional benefit of allowing you to reclaim VAT on the machine).

The second is that when you pay upfront, you aren’t tied into any long term commitments or contracts. This has two main follow-on benefits in that you typically get the best price available for the machine because you aren’t paying interest over time, and secondly that it gives you the freedom to choose any coffee beans, training or servicing suppliers and you can sell the machine whenever you like with no repercussions.

The Downsides to Buying a Coffee Machine Upfront

• The large upfront cost has an impact on your cash flow.
• Your business now owns the machine, and it is yours to dispose of if requirements change or issues arise.
• Like buying a new car, the value of the coffee machine will depreciate over time.

Because upfront purchase is quite a simple process, there aren’t too many downsides to consider.

The most apparent downside is the large upfront cost. This is the main hurdle you’ll have to overcome if you want to own your machine outright. We would really recommend doing as much research as you can into the kind of machine you need and not just going for the most affordable option. If the ideal machine for you is just slightly out of your budget then there are always other finance options available to help you avoid buyer’s remorse, but the decision is ultimately up to you.

The second downside is that the value of the machine decreases during ownership. It’ll sit on your balance sheet as a depreciating asset, and just like buying a new car, a phone or laptop, you are probably going to make a loss if you go on to re-sell your machine. Though, on the upside, you’ll be paying roughly the list price rather than paying a premium to lease the machine just to eventually give it back.

The final thing to consider with an upfront purchase is that the machine is yours to take care of, maintain and service. With other finance options such as rental or free on loan, the supplier looks after the machine and should take care of any issues for you. If you have bought your machine outright, you might not be covered for repairs and breakdowns. That being said, there’s a good chance your supplier will offer optional cover packages and pay-as-you-go options, especially if it’s a machine that they have sold you.

Directly Renting from the Coffee Machine Supplier

A Direct Rental agreement is a method of supplying a coffee machine to customers without them incurring a high upfront cost or involving a lease provider.

In a Direct Rental, the coffee machine is purchased by the coffee machine supplier and then rented back out to the customer at a fixed price spread over the long term. The pros and cons for the customer are largely similar to a lease rental agreement, though they are not able to purchase the machine at the end of the contract.

The Benefits of Direct Rental for a Coffee Machine

• Maintenance and machine upkeep is the responsibility of the supplier.
• Spreads the cost over a long period of time.
• No large upfront payment affecting your cash flow.

Downsides of Direct Rental Coffee Machines

• Total payments will be greater for having the privilege of paying over time.
• Locks you into a long-term contract that typically requires a full payment on early-exit.
• You’ll be making payments towards a machine that is owned by another business.
• You will not own the machine after the contract ends.

We have largely moved away from providing Direct Rental coffee machine agreements since there is an element of risk that is not present when working with a third-party lease provider. However, when commercially viable, this is an agreement type that we could consider if the scope for low risk profitability is high.

Free on Loan Coffee Machines

The final coffee machine purchase method is one that we no longer advertise; the Free on Loan agreement.

In this purchasing agreement, the espresso machine is supplied free of charge to the customer before the value is repaid through an inflated price of coffee, training, maintenance or additional services. The idea of a free espresso or bean-to-cup machine could be seen as a great positive for our customers but, as they say, ‘nothing is free’. This is an agreement that we have largely stopped providing since the 2020 global pandemic due to the large list of drawbacks for both us and the customer.

Positives to Free-on-Loan Coffee Machines

• No upfront or long-term payments for the coffee machine.

Drawbacks of Free-on-Loan

• Customer eventually pays back over the full value of the machine but never gains ownership.
• Price of consumables (E.g. coffee beans) becomes artificially inflated.
• Contract terms are decided on coffee volume commitments.
• Any coffee purchased above the expected volume remains at the inflated price.
• Shortfall charges are incurred by the customer when less coffee is sold than expected.
• The contracts become commercially unstable for both parties during periods of instability.

With a Free On Loan agreement, we have found that both parties begin fixating on the profitability of the contract rather than uniting to increase the value and quality of coffee over the long term. Whilst free coffee brewing equipment can sound enticing, you end up incorporating the price of the machine into the coffee itself and becoming demotivated to sell more coffee than initially predicted.

Click through to our dedicated blog post and video to learn more about the Common Issues with Free on Loan Coffee Contracts.

Buy Your Coffee Machine the Right Way

To recap, there are quite a few different purchase methods we can offer if you’re looking to purchase coffee machines from us. Depending on your situation, we would likely advise between an outright purchase or a lease agreement as these are win-win for both the customer and ourselves in most situations.

We will occasionally consider a Direct Rental agreement for customers with specific requirements so long as it is mutually beneficial for both parties. A Free on Loan agreement, no matter the situation, is typically lose-lose for everyone involved which is why we tend to avoid them.

We hope this has been insightful. If you are still not sure which agreement is right for you, feel free to tell us a little bit about your business and we’ll get in touch.

Want to learn more? Check out these additional resources: How our Pricing works , How to Choose a Coffee Machine for your Business, Our Most Loved Coffee Equipment, or View our coffee machines.

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