Unlike other financing techniques, Equipment Sale and Leaseback allow companies to convert a depreciating asset into cash that can enhance the balance sheet and financial ratios. The company can also retain use of the equipment and benefit from tax advantages.
But it’s important to consider all the options and carefully assess terms, operational impacts, and long-term business goals.
1. Independent Finance Companies
Sale Leaseback financing is a way for small businesses to turn equipment assets into working capital. It works by pledging your company’s existing equipment assets to an independent finance company in exchange for cash. The pledging process is usually fairly quick and simple, and even companies with bad credit or startup business can qualify.
When structured strategically, sale leasebacks offer funding flexibility while retaining asset control and aligning interest costs with operating forecasts. This restructures the capital structure to lower debt service expenses while freeing up liquidity.
One of the most common misconceptions is that only a narrow group of assets qualifies for a sale leaseback transaction. But today’s financing marketplace accepts a wider range of machinery and specialized vehicles than most people realize. Getting professional advice can ensure that the right terms are negotiated to maximize the benefits of sale leasebacks. This includes evaluating lease terms, potential operational impacts and tax implications to ensure that the agreement works for your business.
2. Banks
Whether you are looking for an alternative source of financing or need to acquire additional equipment, a Bank Equipment Sale Leaseback can be a great option. This financing structure combines the speed and funding of an equipment loan with an ongoing rental agreement to maintain business usage. It differs from a term loan in that it does not show up as a debt on your balance sheet and offers flexible usage parameters.
Unlocking trapped capital on your balance sheet is quick and easy with equipment sale leasebacks. Start by getting your titled equipment professionally appraised to determine its current fair sale value. Then, approach an experienced equipment finance company to get the ball rolling.
Sale leasebacks can be a quick way to obtain an immediate influx of cash and can help you seize time-sensitive growth opportunities. But, be sure to consider your specific financial landscape and long-term goals when evaluating this financing option. Especially for industries like life sciences and biotechnology, where expensive analytical equipment is the status quo, sale leasebacks are an incredible alternative source of capital.
3. Private Lenders
Some lenders offer sale leaseback programs where equipment ownership reverts back to the operating company after the last payment. These are typically well suited for companies that have long-term business goals, but do not want the expense associated with repurchasing the assets.
The structure of an equipment sale leaseback may be more complex than a traditional loan. But the benefits are many. These include leveraging trapped capital, saving on depreciation costs, and preserving debt capacity for growth.
It’s important to select a financing partner with experience structuring sale leasebacks. This will help ensure the deal is structured to fit your financial landscape and broader business objectives. The underwriting process includes assessing the underlying assets to determine their fair market value and finalizing the financing structure’s tenor, payments and interest rate. The process is usually much quicker than that of a conventional bank loan.
4. Other Lenders
Many companies believe only a limited set of equipment assets qualify for sale leasebacks. However, the reality is much more expansive. As long as a company owns its equipment free and clear of liens, it is eligible for sale leasebacks. This enables it to unlock capital that is trapped on balance sheets, converting it into usable working capital for growth without taking on debt.
When structured thoughtfully, sale leasebacks can be a powerful tool for managing business expansion and optimizing working capital models without the risk of new debt. It’s important to partner with a financing expert that understands the full range of leasing options and structures to unlock the most value from your assets.
36th Street Capital offers a comprehensive suite of equipment finance solutions to empower middle-market businesses to thrive. We’re committed to providing tailored solutions that align with your unique business needs and strategic goals. Contact us today to explore your equipment monetization options.