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Equipment Sale Leaseback

A sale-leaseback works kind of like a home equity loan on your house.  If you OWN the equipment (especially heavy equipment identifiable with a title and VIN) you can use that asset to receive cash and pay it back over a period of time.

What is a Sale-Leaseback?

A sale-leaseback is a unique type of equipment financing. In a sale-leaseback, sometimes called a sale-and-leaseback, you can sell an asset you own to a leasing company or lender and then lease it back from them. In an equipment sale-leaseback, you pledge the asset as collateral and borrow the funds through a $1 buyout lease or equipment finance agreement. Depending on the type of transaction that fits your needs, the resulting lease could be an operating lease or a capital lease.

Why Would I Want a Sale-Leaseback?

Why would you want to lease a piece of equipment you already own? The main reason is cash flow. When your company needs working capital right away, a sale-leaseback arrangement lets you get both the cash you need to operate and the equipment you need to get work done.

Advantages of a Sale-Leaseback

  1. Lower bar to qualify, even for bad credit or start-up businesses as long as the equipment is a fit.
  2. A sale-leaseback can be very tax friendly – with payments often structured as operating costs.
  3. The terms, rate, and payment on a sale-leaseback are often more favorable than other methods of getting access to funds.

Disadvantages of a Sale-Leaseback

  1. If you default on the loan, your equipment will be repossessed.
  2. A sale-leaseback typically works on a 2-1 ratio. If you need $100,000 you will need to pledge equipment valued at $200,000.
  3. Equipment is valued at “liquidation value” – which is what a lender would get at auction. This is often much lower than what is anticipated. 

Will your Equipment Qualify for a Sale-Leaseback?

  1. Is the equipment free of liens and owned outright?
  2. Is the asset identifiable only to you with a serial # or VIN#?
  3. Can the equipment be repossessed and liquidated in case of default?
  4. In case of default, is the value of the equipment worth the cost of repossession and remarketing for resale?

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