The Hidden Cost of Free on Loan Equipment

How Free on Loan Actually Works

Free on loan (FOL) arrangements are typically offered by coffee roasters as a way to secure exclusive supply contracts. The roaster installs equipment at your venue — most commonly an espresso machine and grinder — and in return, you agree to purchase all of your coffee exclusively from them, at a set price per kilogram, for a fixed term. The term is usually two to five years.

On the surface, it looks like you're getting something for nothing. In practice, the cost of the machine is baked into the coffee price you pay every week. The roaster isn't giving anything away — they're financing the equipment themselves and recouping the cost through your bean purchases over the life of the contract.

The Costs That Don't Show Up on the Invoice

1. You're locked into one coffee supplier

This is the biggest trade-off, and it's one that many cafe owners underestimate at signing. Your coffee is your product. The quality, consistency, and origin story of your beans directly affects what ends up in your customers' cups. When you're bound by an FOL contract, you lose the freedom to change supplier if quality drops, if your roaster's prices rise, or if you simply find a better fit for your menu.

In a market where specialty coffee is increasingly competitive, being locked out of the sourcing decisions that define your cafe is a genuine business risk.

2. The per-kg price is rarely renegotiable

FOL agreements typically set your coffee price at signing. But input costs for roasters fluctuate — green bean prices, freight, and energy costs all move over a two-to-five year contract term. If your roaster's costs go up, you may find yourself stuck on a contract price that no longer reflects fair market value, or pressured into renegotiating at a disadvantage because you need their machine to keep operating.

3. You build no asset

A commercial espresso machine is a tangible asset. Quality equipment from brands like La Marzocco, Slayer, or Synesso holds its value well and can be on-sold if your business changes direction. Under an FOL arrangement, that asset belongs to the roaster. At the end of your contract, you have nothing to show for years of payments embedded in your bean costs — and if you want to continue, you typically sign again.

4. Exit penalties can be significant

Leaving an FOL contract early usually triggers a penalty clause — often calculated as the remaining value of the equipment, or a set number of weeks of coffee supply. These clauses are there to protect the roaster's investment, but they can make it very difficult for a cafe owner to exit even when the relationship isn't working.

5. Maintenance and service can be complicated

Because the machine belongs to the roaster, you may be dependent on them — or their preferred technician — for servicing and repairs. Response times vary, and during a breakdown you may have limited recourse. When you own your machine, you can call any qualified technician and get it fixed on your timeline.

Running the Numbers

Consider a mid-range espresso machine worth $18,000. Under an FOL arrangement, a roaster might embed a recovery of $3–5 per kilogram of coffee into the price differential versus open market rates. For a cafe using 20kg per week, that's $60–100 per week, or $3,100–$5,200 per year in additional coffee costs — on top of what you'd pay at market rates.

Over a four-year contract, that's potentially $12,000–$20,000 in above-market coffee costs, for a machine that you still don't own at the end. Finance repayments on the same $18,000 machine, by contrast, end — and you own the asset.

Factor	Free on Loan	Financed Ownership
Upfront cost	$0	$0 (financed)
Ongoing cost	Higher coffee price for contract term	Fixed weekly repayment
Coffee supplier freedom	✗ Locked to one roaster	✓ Buy from anyone
Asset ownership at end	✗ Machine goes back	✓ You own it outright
Exit flexibility	✗ Penalty clauses apply	✓ No lock-in
Service & repairs	Dependent on roaster	✓ Use any technician
Coffee price control	✗ Fixed at signing	✓ Negotiate freely

When FOL Makes Sense

Free on loan isn't always the wrong call. For a brand-new business with very limited capital, it can provide access to equipment that would otherwise be out of reach. If cash preservation is critical in the first six months and you're comfortable with the roaster relationship, it can bridge a gap.

The key is going in with clear eyes. Read the contract carefully, understand the exit clauses, calculate what you'll actually pay in above-market bean costs over the full term, and weigh that against the alternative.

The Alternative Worth Considering

Equipment finance lets you acquire the machine outright, on a fixed repayment schedule, without tying your coffee supply to the deal. Your repayments are predictable, they end on a set date, and from that point the asset is yours. In the meantime, you can source coffee from whoever best serves your business — whether that's a local specialty roaster, a co-op, or an importer you've built a relationship with over years.

For most established cafes and roasteries, the numbers favour ownership. The repayments are often comparable to or lower than the effective coffee premium under an FOL arrangement — and they stop.