By Dennis Monroe
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Equipment leasing was one of the earliest forms of financing for restaurants, used typically to fund furniture, fixtures, equipment and, at times, leaseholds. I got involved in franchise and restaurant finance in 1980, and one of the major players at that time was Bell Atlantic—one of the Baby Bells—who had an equipment leasing program and real estate sale/leaseback program. Other companies, such as Franchise Finance Corporation of America, had not yet combined real estate and equipment leasing into one product.
For many years, particularly during the height of the tax shelter era, equipment leasing firms utilized operating leases where the lessor kept the tax benefits, including depreciation and investment tax credit. When the tax laws governing passive investments, particularly losses, changed, it was not as favorable to use operating leases.
Equipment leasing has been very significant in our industry. Certain vendors (e.g., ice machine makers) have had leasing programs, as well as some of the early technology companies, particularly those focused on POS operations. With the proliferation of securitized lending in the 1990s and early 2000s, separate equipment leasing programs slowed down and went into the background. The advent of banks and finance companies offering a higher level of senior debt further marginalized equipment leasing. In spite of that, equipment leasing is still alive and well and a vital part of our industry, particularly for smaller operators.
So how does an equipment lease work in today’s market?
In researching this, I reached out to four individuals who I have worked with on equipment leasing: Spencer Thomas, executive vice president of KLC Financial Inc. in the Minneapolis area; Michael Paszkiewicz, president, and Joe Burns, vice president of sales of Vend Lease Company in Baltimore; and Joe Haynes, regional sales manager for Creekridge Capital, LLC, also in the Minneapolis area.
In so doing, I uncovered some interesting information about equipment leasing. Here’s what I gleaned from my discussions:
I initially thought equipment leasing had limited use (similar to my initial thoughts about mezzanine financing). However, after speaking with my four experts, its clear equipment leasing is alive and well and may be a great financing alternative for remodels, equipment upgrades, technology changes and ongoing needs after acquisitions.
Dennis Monroe is co-founder and chairman of Monroe Moxness Berg, P.A., a law firm devoted to the restaurant sector in the areas of M&A and corporate and institutional finance. You can reach him at (952) 885-5962, or by email at dmonroe@ mmblawfirm.com