Sale Leaseback Equipment Financing is an arrangement whereby an equipment finance company purchases your business’s equipment, then leases it back. The transaction is an off-balance sheet financing solution, preserving your debt capacity and providing flexibility to meet business needs through Sale Leaseback Equipment Financing.
Done right, sale leasebacks provide enhanced liquidity without disrupting operations. Specialized lease financing firms offer flexible terms that align with your operating realities.
Benefits
Despite misperceptions, leaseback arrangements are often less costly than traditional loan financing alternatives. They offer flexibility to align financing costs with equipment lifecycles and operating goals. In addition, they minimize depreciation and allow for easier access to cash.
A mid-sized manufacturing company was faced with an urgent order from a new customer that required expanding production capacity. They opted to use a sale leaseback on existing machinery to raise cash and immediately purchase new equipment to meet the demand.
A well-structured sale leaseback unlocks trapped liquidity for growth without taking on additional debt. It’s also a great way to replace outdated equipment and improve operations. The key is to work with an independent leasing finance firm to identify and professionally appraise the equipment, ensuring accurate appraisals are used for the final sale. Then, the leasing company can create a customized sale leaseback arrangement. The resulting arrangement may include either an operating or capital lease structure.
Taxes
An equipment sale leaseback provides immediate cash and tax benefits, improves the balance sheet, and offers flexibility in financial planning. It’s important to evaluate the total cost and operational impact as well as long-term implications of this financing approach before pursuing it.
A sale leaseback involves selling equipment currently owned by a business and then leasing it back in an operating lease. The resulting lease payments are typically deductible as business expenses and can help offset the initial cost of capital, potentially saving money for companies with lower operating income.
It’s important to get equipment professionally appraised to determine the current fair market value and lease terms before proceeding with a sale leaseback. The IRS scrutinizes these transactions, and if they suspect you’re trying to hide profits or that the transaction isn’t legitimate (e.g., if you retain too much control or lease terms suggest you never really gave up ownership), they could disallow the treatment and you’d end up with a depreciating asset on your books rather than an operating expense.
Liquidity
Sale leasebacks offer a unique way to monetize equipment and improve short-term liquidity without taking on new debt. Companies identify eligible assets, get them professionally appraised and agree to a fair sale price with an Equipment Finance company. Once the agreement is finalized, ownership transfers but the company retains day-to-day access to the equipment.
Despite common myths about restrictive criteria for qualifying equipment, the financing marketplace accepts much more machinery and specialized vehicles than most people realize. Any equipment whose value stems from utility rather than commoditization can be considered a potential sale leaseback candidate, including metal fabrication, medical imaging and even telecom switches.
Businesses that require additional liquidity to pursue growth opportunities, pay down debt or manage financial volatility can find tremendous value in this arrangement. It’s like turning your heavy machinery, trucks and gadgets into money superheroes that swoop down from the rafters clutching bags of cash for you to use. And the best part is that it can be done without disrupting operations or putting your business at risk.
Flexibility
Sale leasebacks transfer temporary ownership to an equipment financing entity while preserving asset usage and operational capacity. This unlocks liquidity and can be used for critical priorities like expansion, inventory buffers and debt refinance without disrupting operations or taking on new debt. Critics complain that sale leaseback financing seems expensive but fail to consider the tax savings and accounting benefits, preservation of debt capacity and flexibility.
Misconceptions warn that only a narrow group of assets qualify for sale leasebacks due to valuations, condition and title issues. However, specialized equipment financing companies offer flexible sales leaseback programs that can unlock a wide range of hidden assets.
Identifying optimal lease durations aligned with equipment lifecycles, negotiating “bend points” for payment adjustments as usage varies and locking in fair market value repurchase options at end of lease term to maximize liquidity benefits. When structured strategically, leveraging existing equipment to fund priority initiatives without adding new debt can accelerate growth and fuel profitability.