Small Business Tips

What is an equipment sale-leaseback?

Many small businesses in need of capital are utilizing equipment sale-leasebacks to unlock the equity on free and clear equipment.


 

In today’s new reality, many businesses are still reeling from pandemic-induced financial challenges. For businesses with free and clear equipment, sale-leasebacks are a great way to unlock equity and generate much needed working capital.

An equipment sale-leaseback transaction occurs when an entity sells equipment it owns and immediately leases the asset back from the buyer. It is done for an agreed upon term and at an agreed upon payment.

The business selling the equipment must own the equipment outright with no existing liens or loans. All lenders will require a 1st lien position.

Manufacturing-Equipment Revised

The seller of the equipment then becomes the lessee, and the buying lender becomes the lessor. These types of transactions impact the accounting for both the seller-lessee and buyer-lessor. Loan amounts will differ depending upon the lender’s financial, credit, and collateral review.

Equipment sale-leasebacks provides a great asset-based option for companies looking to increase liquidity, optimize cash flow, and improve balance sheet presentation.

For businesses that need flexibility in structuring their financials, leveraging the equity in your current assets is a strategic way to procure capital for growth or restructuring.

 

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