Many believe only certain types of equipment qualify for Machinery Sale Leaseback. However, most financing partners accept a wider range of heavy machinery, titled rolling stock, and other assets than you might think through Machinery Sale Leaseback.
Determine the hidden, unlocked fair market value of your equipment. Work with a financial advisor to ensure the lease terms align with your business goals.
1. Convert Non-Liquid Assets into Working Capital
In industries like life sciences and biotech, where costly analytical instrumentation is the status quo, an equipment sale leaseback offers significant financial flexibility. However, a sale leaseback arrangement must be carefully evaluated to ensure the terms align with your company’s financial capabilities and long-term goals.
A well-structured sale leaseback is a way to release captive value trapped in your hard assets. These arrangements allow companies to convert specialized equipment, machinery, vehicles and other assets owned free and clear into working capital for growth without adding debt to the balance sheet.
It can be a quick and simple solution to a pressing need, particularly for agriculture businesses that need liquidity from tractors, grain trucks and other equipment during harvest season or growth spurts. A sale leaseback transfers temporary ownership to a financing entity in exchange for lump sum cash, but the asset still remains in use throughout the lease term.
2. Retain Access to Critical Equipment
Running a small business is a test of your resourcefulness and ability to make the most out of limited resources. If you’re struggling with tight cash flow or slow loan approvals to acquire new equipment or replace outdated technology, an equipment sale leaseback arrangement could be the answer.
Despite some myths, there are no major restrictions on the type of equipment that qualifies for an equipment sale leaseback. In fact, most types of machinery and vehicles can be included, even those that are specialized or have low residual values. Moreover, a strategic sale-leaseback structure can help you retain access to critical equipment while unlocking cash for growth opportunities. You can also negotiate flexible usage parameters compatible with your operating forecasts. This ensures operational continuity without forcing you to invest in expensive upgrades to replace equipment that’s already nearing the end of its useful life.
3. Boost Financial Flexibility
Sale leaseback provides a flexible solution for monetizing assets and improving liquidity without incurring additional debt. It is often a more cost-effective financing option than conventional loans or lines of credit for companies with significant amounts of capital tied up in equipment.
This arrangement enables you to immediately free up working capital, boosting liquidity to fuel other priorities like growth, debt reduction or emergency expenses. At the same time, you retain access to critical equipment and operational flexibility.
In addition, this arrangement offers built-in tax benefits based on the effective pass-thru of depreciation and the accounting treatment of lease payments as operating expense rather than interest expense. Critics who claim that sale leasebacks are expensive fail to take into account these financial advantages. Breaking down the myths helps you better evaluate if this is the right solution for your business needs.
4. Avoid Downtime
If you’re a business that relies on machinery assets, equipment sale leaseback is an excellent way to monetize them and unlock valuable financial resources. Unlike traditional loans, this unique financing strategy doesn’t require you to forfeit ownership of your assets.
When you work with an independent finance partner, you can mutually design terms that are optimized for your business model and operational needs. This can include monthly payments, lease term lengths, and renewal options.
Equipment sale leaseback is a perfect solution for manufacturing, construction, transportation, and other asset intensive businesses. It also works well for companies that need to upgrade their technology regularly. For example, a machine that cuts aluminum, a light material, will be in much better shape and worth more money than one that cuts cast iron, which can cause long-term damage to machinery components.
5. Maximize Tax Benefits
While many companies assume only a narrow spectrum of equipment qualifies for sale leaseback arrangements, financing firms often accept a wide range of machinery and vehicles that are critical to operations. In addition, when structured carefully, sale leasebacks can be eligible for Section 179 tax credits.
Ultimately, these strategies allow organizations to access the financial resources they need without having to sacrifice ownership of critical equipment assets or forfeit depreciation deductions. The resulting improvement in cash flow can be used to invest in growth opportunities, pay down debt, or manage daily operating expenses. In addition, sale leasebacks can accelerate the pace of capital investment by bypassing traditional loan approval time frames. This can be particularly advantageous for high-growth firms that are unable to meet the requirements of lengthy application processes and underwriting reviews.