Equipment Sale Leaseback Financing is a financing structure that allows companies to unlock trapped working capital for growth without the added debt burden. Equipment Sale Leaseback Financing transfers temporary ownership of equipment assets to a finance firm while maintaining physical possession and normal usage, making lease payments that are part of operating cash flows and aligning interests over longer-term strategic investment horizons.
Obtaining a Sale Price
If you need immediate cash for your business, a sale-leaseback is an excellent option. With this financing method, your equipment finance company will purchase the equipment from your business, then lease it back to you for a specified term. This allows you to receive money immediately and pay it off over time, which is more cost effective than many other unsecured loans for small businesses including credit cards.
The process begins by having a professional appraise the equipment to determine its fair market value. This will help you negotiate the right sale price with your financing partner, which will then be the buyer in this transaction. Upon completing the sales process, you will enter into a lease agreement with your financing company and begin making monthly payments. You will retain physical possession and usage of the equipment throughout the term of the lease, which is typically for 3-7 years. Depending on how the lease is structured, it can provide several benefits, including tax advantages.
Obtaining a Lease Agreement
Often, the best candidates for sale leaseback financing are large pieces of equipment with substantial value and a long useful life. Collections of smaller items may not hold enough value to warrant the effort involved in assessing and selling them.
Leaseback agreements should be flexible and align with a business’s forecasted needs. Working with a leasing advisor that can customize lease terms and payment amounts to meet specific equipment lifecycles and operating strategies is essential.
Critics of equipment sale leasebacks often overlook the tax savings, preservation of debt capacity and strategic benefits. The key is to carefully assess a company’s financial position, capital needs and overall business objectives to determine if this type of financing makes sense. To get started, find an experienced advisor with a proven track record of structuring sale leasebacks. They can help you monetize your equipment assets and meet your business goals. For example, lab equipment sale leasebacks allow you to turn over costly analytical instrumentation for liquid cash without losing control of the asset.
Obtaining Financing
An equipment sale leaseback, also known as a capital reimbursement, allows companies to quickly convert non-liquid assets into working capital. Moreover, the company retains access to the equipment. This allows them to capitalize on growth opportunities, reduce debt, or cover emergency expenses without sacrificing operational continuity.
The process typically begins with a professional appraisal of the equipment. Then, the financial institution will review the company’s cash flow, credit history, and asset quality. A well-structured sale leaseback can be approved in a matter of weeks.
The monetization of equipment can unlock trapped value and liquidity for business expansion, working capital optimization, and new product development. In addition, negotiated terms allow for flexibility by right-sizing equipment lease durations to align with projected asset usefulness and lifecycles. Furthermore, the equipment can be used as collateral to secure additional financing. This eliminates the need for a costly bank loan. Despite criticism that sale leasebacks appear expensive, these critics fail to consider the tax savings and accounting benefits.
Obtaining a Purchase Option
An equipment sale leaseback allows a business to monetize underused assets and leverage capital for short term financing goals and long term growth acceleration. In addition, an efficient sales leaseback transaction can bolster cash flow and help balance working capital cycles.
Unlike many other financing options, sale leasebacks can be structured for almost any small business that owns equipment that has value. Even startups and businesses with less than perfect credit can qualify, as long as the equipment is titled or has a resale value.
Your financing partner will work with you to shape lease terms, payments and renewal/buyout options that comfortably meet your operating needs. In addition, you will be able to take advantage of Section 179 tax deductions and bonus depreciation. You may also qualify for a tax deduction on the sales proceeds, depending on how the deal is structured. Talk with your accountant to learn more about tax implications.