UK
IRE
AU
CA
US
ZA
NGExpert financial copywriter
Page written by Chris Godfrey. Last reviewed on October 9, 2024. Next review due October 1, 2025.
No matter if you’re making fancy wedding cakes, artisan bread or thousands of sliced loaves, you need bakery equipment to get the job done right. However, when a commercial oven can cost anywhere from $3,000 to $6,000 equipping a bakery business to perform at its best can require a lot of dough.
Fortunately, there’s an alternative: Bakery equipment financing is designed to reduce the financial strain of equipping bakeries with machinery and tools. Keep your working capital for other needs. Buy or lease your new equipment over time instead of paying all at once.
Bakery equipment financing and leasing refers to specialist business loans that help organizations buy the bakery equipment they need. This type of financing is more readily provided by online lenders than traditional banks and credit unions and it can be used to buy new or used bakery tools and machinery.
Firstly, financing or leasing may be a more tax efficient way to obtain the bakery equipment you need. Secondly, because you’ll only need to make a down payment on the equipment, instead of covering the whole cost upfront, you may be able to buy or lease better, more expensive and up to date equipment than you could afford with cash.
If you can’t or don’t want to buy your bakery equipment with cash, you can obtain the machines, tools and other items you need with a business loan or an equipment lease.
Let’s compare these options:
All business loans for the purchase of bakery equipment work with the same basic format: You borrow a sum of cash and then repay it over time. Interest charges and fees are added to the principal amount you borrow. The lender may retain a lien on the equipment during the term of the loan. At contract end you’ve paid the loan back and you own the equipment outright.
Advantages of business loans for bakery equipment
Disadvantages of business loans for bakery equipment
Leasing works differently from business loans. With a lease, you’re not buying the bakery equipment, you’re taking out a long-term rental. Depending on the type of lease you choose, you may have the option to buy the equipment at contract end for a pre-agreed sum, (which could be as low as $1 but is usually the residual value of the equipment – which means what it’s worth in used condition).
Because you are not repaying the whole cost of the equipment, leasing usually requires lower monthly payments than business loans. You may also pay a smaller down payment – perhaps equal to one or two month’s repayment instalments.
If you choose not to buy the equipment at the end of the lease, (or you have chosen an operating lease that forbids it), the machinery and tools go back to the lender. You would then need to take out a new lease and obtain replacement equipment. (Which could allow you to buy more modern and up to date machinery).
Some lessors (lenders) may give you the option to extend the lease if you prefer to keep the equipment but do not wish to pay the residual.
Advantages of leasing for bakery equipment
Disadvantages of leasing for bakery equipment
Business loans to buy bakery equipment:
Equipment financing
The most common way to buy bakery equipment, equipment loans are ‘self-collateralizing’ – like auto loans – you use the equipment as you pay for it, while the lender maintains a lien on the machinery. Once you pay the loan back, the lender releases the lien, and you own the equipment outright. No added collateral is required.
Business term loan
The standard type of business loan. You receive a single, lump-sum cash injection and then pay it back in regular instalments, plus interest and any fees, over a fixed period of up to 25 years. Collateral may be required.
Business line of credit
This is a business loan that functions like a high-value credit card but comes with lower interest rates and fees. Withdraw as much as you want when you want from a loan facility up to the limit of your borrowing. You only pay interest on the sums you withdraw, not the whole line. This can significantly reduce your borrowing costs. Collateral may be required.
Invoice financing
Also known as account receivables financing, this type of loan allows you to borrow against the value of your unpaid invoices and is best for B2B organizations. The lender will usually provide up to 95% of the invoice value within a few days or even hours of the bill being raised. Your invoices act as security for the loan, no added collateral is required.
Merchant cash advance
Available for bakeries that accept customer payments by credit and debit card. You borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security for the loan, no added collateral is required.
Business credit cards
If you have good credit, it may be possible to secure a business credit card with a high limit to buy your bakery equipment. The application process is usually online, fast, streamlined and does away with the need for piles of paperwork – in many cases you won’t even need a formal business structure to apply. Be aware that business credit card interest rates are typically much higher than for many other types of business loan. Collateral is usually not required.
Leasing bakery equipment:
Finance lease
A finance lease gives the lessee (you) the option to buy the equipment at contract end. You provide a down payment and then pay a monthly rental sum to use the equipment during the contract period. At the end of the lease you can either pay the residual sum and keep the equipment, extend the lease and continue to rent, or give the equipment back to the lessor. A finance lease may or may not include maintenance and servicing of the equipment. You will usually be responsible for the equipment insurance.
Operating lease
An operating lease is a simple long-term rental agreement. There is no option to buy the bakery equipment at contract end. You provide a down payment and then pay a monthly rental sum to use the equipment. When the lease expires, the equipment returns to the lessor. The lessor provides equipment maintenance and servicing, but you will usually be responsible for equipment insurance. An operating lease often comes with lower monthly payments than a finance lease.
The key question to ask yourself is, ‘do I want to own the equipment at contract end?’ If your answer is yes, you may be better off buying the machinery with a business loan or taking out a finance lease.
Leasing can be a good option for new bakeries or those with limited cash to hand or who do not have deep experience of the industry. Leasing gives you the equipment you need with less upfront expense and often with smaller monthly payments. You can also learn more about the bakery equipment you need and can easily dispose of the equipment at contract end – giving you the opportunity to switch to different equipment or upgrade to more efficient machinery. Leasing may also give you inclusive equipment maintenance and servicing.
After your premises, bakery equipment is the most essential requirement for your business. Key items you’ll need include:
The cost and complexity of modern bakery equipment varies enormously, and large-scale commercial bakeries will typically need a lot more equipment than a small, retail or café style bakery business. Costs to equip a new bakery can therefore vary from a few thousand dollars for a home bakery up to $60,000 or more for a standard retail operation and $200,000 or more for an industrialized commercial bakery business.
Interest rates and fees for bakery equipment financing can vary significantly, so it makes sense to shop around before settling on a lender. You can do this by approaching banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will introduce you to a choice of bakery equipment loans from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a business loan before.
No matter if you’re launching a brand-new bakery, or you’re an established business, chances are you need finance to make the operation grow. Funding is where Swoop can really help. Many types of business loans are suitable for bakeries, but working with finance experts can make all the difference when applying for funding. Contact us to discuss your borrowing needs, get help with loan applications and to compare high-quality equipment financing from a choice of lenders. Make your bakery the toast of the town. Register with Swoop today.
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
Swoop promise
At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.
Find out more about Swoop’s editorial principles by reading our editorial policy.
Get your free Bakery equipment financing quote today
Apply in minutes 
FREE no obligation, personalised quote 
Get a quote 
yet? Register here!