Sale leaseback is a financing solution that transfers ownership of Equipment Sale Leaseback to a leasing company in exchange for lease payments. It unlocks trapped liquidity for growth without requiring additional debt or forfeiting usage rights.
Dedicated lease finance firms offer flexible sale leaseback programs that align with business’s short and long term financial goals and needs. It’s important to review the pros and cons of the approach before proceeding.
Getting Started
A sale leaseback is a two-part financing structure in which you sell your equipment for its fair market value to a leasing company that then leases it back to you for continued use. This type of financing is especially valuable for companies with expensive, large machinery and other assets that hold significant resale value.
Because the transaction is secured with your own assets, you typically have a lot of flexibility to shape the terms of the lease agreement. However, your financing partner will likely want to ensure that your equipment is in good working condition and that you maintain it on a regular basis.
Generally, any small business that owns appropriate equipment can qualify for this type of financing. It is an effective way to convert non-liquid assets into cash, boosting financial flexibility for initiatives like growth expansion, debt reduction, or emergency funding. It is an especially good option for companies with custom or specialized equipment.
Preparing for the Sale
As a small business owner, you need a steady flow of cash to keep expenses in check and seize opportunities as they arise. Oftentimes, equipment costs eat into this cash flow, but you can monetize this capital and improve short-term liquidity with a sale leaseback.
By instantly converting existing assets into working capital, sale leasebacks provide critical cash flexibility and accelerate growth without taking on additional debt. By partnering with an expert, you can leverage accounting and tax incentives to minimize total capital costs and optimize lease durations aligned to equipment lifecycles.
The common misperception warns only a narrow range of equipment qualifies for sale leaseback financing, but the reality is far more diverse. While leasing companies have defined criteria around valuation, condition, title and other factors, today’s financial marketplace accepts a wide range of equipment types, including specialized machinery and vehicles.
Selling the Assets
If you have expensive, specialized equipment that sits idle – even after your company has paid for it – sale leaseback is one of the best ways to unlock its value and inject capital back into your business. However, it’s important to evaluate your company’s specific needs and long-term goals before committing to a sale leaseback agreement.
An equipment sale leaseback transfers temporary ownership of your idle equipment to a financing entity in exchange for an upfront lump sum payment. You then retain usage and physical possession of the asset for a lease term (3-7 years typically). Lease payments are made from operational cash flow, making them 100% tax deductible.
A sale leaseback is a good option for older equipment, or specialized assets with longer useful lives (think metal fabrication, medical imaging, and telecom switches). Unlike bank loans, independent finance companies do not have many of the same regulations, making them uniquely qualified to structure creative, customized sale leaseback solutions.
Closing the Sale
A sale leaseback arrangement is a great option when you need liquid assets to cover operational shortfalls or fund growth initiatives. The equipment is sold to a commercial financing company, and once the transaction is complete they will lease it back to you for a term that aligns with your financial goals.
Emphasize Payment Programs over Equipment Price
When structured thoughtfully, sale leasebacks allow you to leverage existing equipment to meet cash needs without taking on new debt. Despite common misperceptions that leasing companies have strict restrictions around valuation, condition and title criteria, today’s financing marketplace accepts a wide range of machinery and specialized equipment. Value stems from utility rather than commoditization.
Working with a specialist in lease finance can help you understand and shape these arrangements to align with your capital needs and operating profile. A good adviser will also ensure that you take steps to protect your equipment’s residual value by performing regular maintenance.