Coffee Machine Financing: When is it right to finance your machine?

Coffee machine financing is one of the most common options companies opt for. Financing can be great option in some cases but it can also be the wrong route to take in others.
In this post we discuss all the good and bad aspects about financing your coffee machine.

What is coffee machine financing?

Coffee machine financing, like any other form of financing, is essentially the process of buying your coffee machine on credit. Most coffee companies in South Africa offer financing through a third party. The terms of financing do vary form company to company but most look something like this:

• Interest rate – Between 12-18 %
• Yearly escalation – Ranging from 0-10%
• Leasing period – Between 36-60 months

After the leasing period, the coffee machine usually becomes your property for a small fee.

Who qualifies for coffee machine leasing:

Again, criteria do vary depending on the financing house but most asset leasing companies require the following:

• Minimum of 4 years in business
• Directors i.d.’s
• 3 Months bank statements
• Landlord details
• Copy of current leasing agreements
• 3 Trade references

What are the pros and cons of coffee machine leasing?

Coffee machine leasing deals used to be very popular many years ago in South Africa, before the more popular rental deals emerged. Leasing is a good way to acquire what can be a very expensive coffee machine for a relatively small monthly fee without needing to fork out large amounts of money upfront – This allows companies to use their cash for some other more pressing items.

The downsides of leasing are as follows:

• No maintenance and servicing built into the lease amount – Because leasing is essentially an arrangement between your company and the asset financing house, one is required to pay an extra fee if you want servicing and maintenance included
• No freedom to change – A lease agreement is an agreement to purchase the machine over an extended period of time. For this reason, if you are unhappy with the machine which you have purchase or your circumstances change and you feel a different machine would suit you better, there is unfortunately very little you can do.
• Leasing Term – Because the terms are rather long (minimum of 36 months), if the coffee companies service or the machine does not perform as intended, you are again unfortunately stuck with the option and coffee company you have selected
• No backing out – Banks and asset financing companies are quite strict with these things. There is very little you can do to terminate your leasing agreement with the exception of buying the whole agreement out
• You pay more – Financing or buying anything on credit means you pay more in the long run. A coffee machine which costs R25,000 with a 10% interest rate and zero escalation on a 36 month term lease will land up costing you R935.29 per month which amounts to R33,670 over 3 years. You land up paying an extra R8670 for your coffee machine which is over 30% the value of the coffee machine in the first place.

Our Verdict

In a nutshell, leasing has its place for some companies but I feel there are just too many disadvantages attributed to buying coffee To machines on credit. I would suggest either renting or saving up if the funds aren’t available now. To view more about the different options, have  a look at our article Renting vs Leasing vs Buying.

If you are ready to try out a machine to see if it will be a good fit for you please complete our trial form below!