Machinery Sale Leaseback offers businesses the opportunity to unlock trapped value in existing assets on their balance sheet. By selling specialized equipment to an equipment finance company and leasing it back through Machinery Sale Leaseback, companies can access liquid capital and free up working capital for growth without taking on debt.

The key to a successful sale-leaseback is carefully evaluating and negotiating terms that align with business objectives and operational needs. This includes defining optimal lease durations and renewal options that match equipment lifecycles and financial goals.

What is a Sale Leaseback?

A Sale Leaseback is a financing method in which you sell equipment that you own to a leasing company and immediately lease it back. This allows you to free up capital that is tied up in the equipment and use it for other purposes.

The sale-leaseback transaction can be structured to be very tax-friendly. In particular, it can allow you to qualify for Section 179 benefits and bonus depreciation. It can also be structured to provide you with a buyout option at the end of the lease term.

The most obvious benefit of a sale-leaseback is that it gives you access to cash that would otherwise be locked up in the equipment. You can then reinvest this money into your business to help it grow. In addition, the transaction may actually improve your balance sheet health by lowering debt service and increasing current assets. You should always consult your accountant to see if this is the case for your particular business.

Benefits

Sale Leaseback can help a company free up cash by selling equipment they already own to a financing company. The financing company then leases the equipment back to the original company on terms they agree upon. This allows the original company to use the equipment without interruption and still get a cash boost.

Companies can utilize this financing strategy for a variety of purposes, including expanding operations, investing in growth, or covering temporary cash shortfalls. It can also be beneficial for reducing debt and improving the company’s debt-to-equity ratio.

The process of completing a Sale Leaseback usually begins with assessing the value of the equipment, which is typically done by an independent appraiser. After the equipment is sold, the former owner enters into a lease agreement with the financing company for an agreed-upon term of time and monthly payments. This arrangement can benefit a variety of businesses, including manufacturers, agribusinesses and seasonal businesses. It can also enable companies to upgrade their equipment more frequently and stay competitive.

Disadvantages

Many equipment sale leaseback critics point to lease rate factors that seem higher than traditional bank loan rates as an argument against this type of financing. However, this misinterpretation fails to factor in accounting and tax savings as well as the preservation of debt capacity and flexibility for future capital spending plans. It also ignores that by transferring ownership to the leasing company, companies lose control of those revenue generating assets and may be subject to leasing company rules regarding equipment usage and modification.

Properly executed sale leasebacks can unlock trapped capital for business expansion, working capital optimization, new product development and overall growth acceleration. The key is to work with a financing partner with experience structuring such transactions to ensure lease terms are properly aligned with equipment lifecycles and business goals. This includes negotiating flexible “bend points” for lease payment adjustments if utilization varies. It also includes determining optimal lease durations that balance projected equipment usefulness with capital return timetables.

Conclusions

Sale leasebacks provide a useful financing tool for equipment owners that allows them to unlock illiquid assets and free up capital for future growth. However, there are many considerations that must be taken into account before executing a sale-leaseback transaction including legal and tax implications. It is crucial to work with experienced advisors who can help ensure that the deal is structured properly, and avoid any major surprises down the road in terms of accounting treatment or tax impact. In addition, careful due diligence on the buyer/investor is required to ensure that they will be a reliable long-term partner for your business.