Equipment Sale and Leaseback is a unique financing structure that enables businesses to sell equipment they already own to a leasing company. This company then leases that equipment back to you, allowing you to continue using it while freeing up capital for other business needs. The Equipment Sale and Leaseback arrangement offers flexibility, as it helps improve cash flow and maintain operational efficiency, without the need to acquire new debt.
This arrangement can be a lifeline for companies facing growth spurts, seasonal fluctuations or even temporary cash shortfalls. It can be a good option for businesses with poor credit histories.
Cost-Effective Financing
Sale leasebacks unlock trapped capital on your balance sheet by transferring ownership of assets to an equipment finance company who then leases them back for a specified term. The process improves the business’s financial ratios and cash flow profile while providing tax advantages including depreciation deductions if the financing structure is properly set up.
Professional advice is key to ensuring sale leasebacks are properly structured and aligned with operating needs. Working with an independent leasing advisor can minimize the time and effort required to execute a transaction.
Whether you’re looking to address temporary cash shortfalls or invest in growth strategies, a well-structured sale leaseback can provide pivotal funding flexibility. The process is typically faster than traditional debt financing and can be completed in a matter of weeks.
Increased Cash Flow
Sale-leasebacks enable companies to convert depreciating assets into liquid capital and reinvest in growth opportunities, pay down debt, or manage daily expenses more effectively. This equipment financing solution can also offer tax advantages – lease payments may be considered interest expense, rather than an asset purchase – depending on your accounting standards.
The equipment is sold to the financing company, which then leases it back to the business for a period of time that’s agreed upon upfront. The process doesn’t interrupt day-to-day operations and the original owner continues to use the equipment.
Despite some misconceptions, a wide range of machinery and specialized vehicles can qualify for leases. The key is working with a financing partner that understands the process and can tailor terms to fit your specific needs.
Tax Benefits
Sale leaseback financing can unlock trapped cash in existing equipment and machinery that is sitting on a company’s balance sheet. By performing a professional appraisal and working with an experienced leasing provider, you can quickly and easily unlock the fair market value of your equipment to free up liquid capital without taking on new debt.
The resulting equipment lease payments are typically viewed as operating expenses, providing significant tax benefits to your business. Monthly payments can be adjusted to accommodate seasonal or cyclical revenue changes, and you have options like “step-up” leases where payment amounts increase over time or deferred payments for months when equipment isn’t being used.
Common misconceptions warn that only a narrow group of assets qualify for sale leaseback, but today’s financing marketplace accepts a wide range of machinery and specialized vehicles. When structured thoughtfully, sale leasebacks can maximize equipment utilization and finance growth goals without sacrificing flexibility.
Reduced Risk
Using sale leasebacks, businesses can free up capital that is currently tied in equipment assets to meet short and long-term needs such as paying off debt or investing in growth initiatives. It also boosts a company’s balance sheet, enabling them to secure more attractive debt financing in the future.
If structured thoughtfully, sale leasebacks can also provide a degree of flexibility to help companies adapt to changing business strategies over time without having to worry about selling or returning their equipment. For example, the lease payments can be renegotiated on an operating basis rather than through a traditional capital lease at the end of the term, allowing for a more flexible exit strategy that aligns with the company’s financial goals.
However, it is important to understand the potential risks of an equipment sale leaseback before making a decision. Seeking advice from a finance consultant can help ensure that the terms of the lease are manageable and that they align with the business’s long-term goals.