An Equipment Sale Leaseback is a financing structure that allows you to sell equipment for its fair market value to a leasing company and immediately enter into an operating lease agreement, keeping physical possession of the Equipment Sale Leaseback. This can unlock liquidity and improve balance sheet financial ratios while providing flexible lease payment options based on business cash flow patterns.
Getting Started
One of the advantages of an equipment sale leaseback is that it’s often easier to secure than traditional financing. Financing companies typically look at the equipment’s resale value, condition and other factors to determine a fair price. This means that companies that regularly maintain their equipment, have positive cash flow and a credit history with little negative history may find that they’re able to shape payment amounts, financing rates and lease terms around their needs.
By selling your equipment for its fair market value to a leasing company, you unlock critical working capital that can be used to fuel growth initiatives and improve cash flow. Unlike some misperceptions, the vast majority of equipment qualifies for a sale leaseback, from machine tools to office furniture and even specialized lab equipment. You can also use the proceeds to refinance existing debt, if desired. The only material restrictions tend to be around using the proceeds for shareholder dividends or non-operating expenses.
Finding a Lender
When you want to get cash fast from an existing asset, a sale leaseback is the way to go. It unlocks trapped potential on the balance sheet by converting revenue-generating equipment into usable working capital for growth without taking on debt.
The process begins with getting specialized equipment or other assets professionally appraised for their fair market value. Once you have this information, you can approach a company that offers equipment finance to make a deal.
The specialized lenders that offer this type of financing can shape payment amounts and other terms to fit your business’s needs. This includes negotiating flexible lease durations aligned with projected equipment lifecycles. It also means incorporating “bend points” to address seasonal or variable usage patterns, so that you don’t have unmanageable payments in slow periods. It’s also important to understand the tax implications of an Equipment Sale Leaseback, and work with your accounting professional or advisor to maximize the benefits.
Negotiating the Deal
A Sale Leaseback is an alternative to traditional equipment financing and is a unique way for companies to acquire working capital. The process involves transferring temporary ownership of idle assets to a leasing company in exchange for regular lease payments. At the end of the lease, the company can either purchase the equipment back, renew or extend the lease, or return the equipment to the leasing company.
Start by identifying the equipment, machinery, vehicles and other assets on your balance sheet that have unlocked fair market value. Have those professionally appraised and then work with an equipment finance company to negotiate a sale price.
Negotiate on a holistic basis, and don’t treat the parties as buyers/seller or landlord/tenant. Be sure that the lease terms align with your overall business strategy, not just the immediate need for cash. A good way to do this is to incorporate early buyout or $1 purchase option options into the lease agreement.
Closing the Deal
Once all parties agree to the terms of the sale leaseback, the company that owned the equipment sells it to a leasing firm in exchange for cash. The leasing firm then leases it back to the original owner (lessee) for a specified duration. This allows the business to continue its operations without interruption.
The lease payments are typically tax-deductible and the transaction is structured to provide favorable balance sheet and financial ratios. It can also potentially qualify for Section 179 benefits and bonus depreciation, among other tax incentives.
There are many misconceptions about sale leaseback financing. But when negotiated thoughtfully, these agreements unlock trapped liquidity for growth and allow companies to leverage existing equipment assets without acquiring new debt or losing usage rights. By identifying the right equipment assets for monetization, finding a flexible finance partner and structuring transactions based on operating forecasts, companies can craft win-win structures that align with short term financial goals and long term investment objectives.