Business everywhere are looking for affordable ways to finance their business ventures, whether they are opening their doors for the first time or just trying to get to the next stage of business. Some businesses need capital to get started, while others run into problems with market demand (a good problem to have).
For businesses that have been operating for a while, or have already acquired certain types of qualifying equipment), there’s another unique, less known financing option available for you called equipment sale leaseback.
What Is Equipment Sale Leaseback Financing?
Knowing what a sale leaseback is can help you to open up another avenue for getting financing for your business. If your company owns equipment, particularly heavy machinery, construction vehicles, and similar assets, you can use that to receive funds on the spot. In turn you’ll pay it off over a period of time, just like a loan or other financing avenues.
As an example, if you’re looking at a $50K sale leaseback, your monthly payments can be $1.2K for 5 years if you have good credit. If you have less than good credit, you might end up having to pay twice as much for the same amount of funding.
Why Should I Use Sale Leaseback?
The advantages of a sale leaseback not only allows you to get a significant amount of funding fairly easy, but they also allow businesses to get funding that otherwise can’t due to typical “disqualifiers” (e.g., bad credit). Sale leaseback is also a very tax-friendly option, where in many cases the entire repayments can be written off as an operating cost. Lastly, as equipment sale leaseback financing takes place over a longer term, the repayments each month are typically much lower than other financing alternatives.
What Are the Downsides to a Sale Leaseback?
Using capital business equipment to get funding does have drawbacks, just like any other type of financing option. Namely, your equipment becomes the collateral in the deal. If you can’t afford to make payments and default, you lose the equipment. Putting up equipment also will also require you to put up a value that often exceeds 1.5 - 2 times the funding amount you seek. Lastly, the value of your equipment will be much lower in the eyes of the financier, who only sees the “liquidation value” of your equipment. Hard assets such as trucks and yellow iron will typically recieve the best equipment sale leaseback offers.
It’s important to analyze the pros and cons of any financing avenue to find the method that works best for your business. If you’ve got the equipment and just need an influx of cash, sale leaseback can be a great option for businesses, regardless of the financial status. You might have to put up a significant amount of equipment in the form of collateral, but it could be the difference between a business that goes under and a business that gains much needed traction.
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