Equipment Sale Leaseback is a financing structure where a company sells its equipment to an independent finance provider and then immediately leases it back. This can be a great way to unlock trapped capital and liquidity for growth initiatives without taking on new debt.
It can also improve balance sheets by converting depreciating assets into cash and improving financial ratios. In addition, lease payments can be fully tax deductible.
Benefits
Equipment sale leaseback provides a way for companies to generate the cash they need without incurring debt or effecting equity financing. The process begins with a thorough valuation of the asset and its current market demand to determine fair value. Then, the asset is sold to a finance company that specializes in sale leasebacks.
Your independent financing partner will arrange a lease arrangement and terms that match your forecast needs and operating profile. Structured strategically, this type of financing can unlock trapped liquidity for growth without the risks associated with debt and loss of control over assets.
Companies can use this financing solution to transform under-utilized assets into the working capital they need to scale operations, replace outdated technology, or take on new projects. In addition, the lease payments may qualify as an operating expense and can provide tax advantages. Unlike conventional loan facilities, sale leasebacks can be obtained from lenders that specialize in asset-based financing and are not tied to the credit score of your business.
Types of Equipment
If your business has a lot of equipment, it could be sitting on an immense amount of untapped value. An Equipment Sale Leaseback can turn these assets into immediate cash, unlock growth potential and reduce debt.
The concept is simple: your company sells its current equipment to a financing partner and immediately leases it back for a term. Depending on your needs, terms like payment amounts and lease rates can be shaped around your operating forecasts.
Despite popular myths, sale leaseback transactions can be conducted on a wide range of equipment, including large trucks and valuable machinery. Your financing partner will take into account the equipment’s age and resale value, as well as your creditworthiness and operational plans for the equipment. The key is finding an experienced financing advisor that can help you understand the full benefits of sale-leasebacks. These deals can reduce overall capital costs and offer tax advantages compared to traditional financing alternatives.
Getting Started
Despite myths about cost prohibitive and predatory sale leasebacks, it is possible to craft an agreement that aligns with your short-term and long-term growth goals. The key is working with an independent financing partner that understands the nuances of these transactions and can optimize them for your company.
The process starts with identifying equipment that has significant untapped fair market value. Get those assets professionally appraised and identify a buyer—typically a leasing or finance company. A financing expert can help you identify the best options and facilitate the underwriting process.
Once the transaction is approved, you transfer temporary ownership of your equipment to your financing partner. Then you enter into an operating lease for the equipment for a specified term (3-7 years typically). You continue to operate the equipment as usual and make payments based on your current cash flow. At the end of the lease term, you have a number of options including purchasing back the equipment, renewing the lease, or replacing it with newer equipment.