Guest Blog Post Authored By: Mathieu LeFebvre, Account Manager, National Leasing.
Strap into the DeLorean, punch it to 88 and go back to a time when your cash flowed freely. When you tackled business opportunities with financial flexibility. When you used that capital to buy equipment your business needed.
Now, come back to the future. Your equipment is still performing but your purchase has hindered cash flow and you need working capital for your next opportunity.
Thankfully, you won’t need plutonium to reach your previous levels of cash flow. Instead, you can use an innovative form of financing known as a sale-leaseback.
A sale-leaseback can turn your existing equipment into liquid assets, making immediate capital available for other investments or upgrades. It also offers competitive financing rates and eliminates some of the risks of ownership.
Here’s how it works: you’ll sell your equipment for fair market value to a finance company and then lease it back over a fixed payment period. You’ll replenish your cash reserves and then use your returned financial flexibility to buy business inputs, pay off high-interest debt or invest in a new business opportunity.
At the end of the equipment lease, you can extend the lease, buy the equipment back, or acquire new equipment with another lease.
Because you'll likely structure your lease for years, sale-leasebacks are best for durable construction and transportation equipment that holds its value well after purchase. Any equipment that you've owned for six or fewer months should qualify.
If you’re wondering whether your equipment is a sale-leaseback slam dunk (sorry, maybe that reference is better for our upcoming Teen Wolf-themed post), consider its rate of obsolescence and depreciation. Also, don’t hesitate to ask your leasing Account Manager for advice and remember, as with all our finance products, final approval is subject to credit review.
Like all leases, you’ll tailor payments to meet your cash flow, including a fixed, stepped or seasonal schedule. Leases can also be adjusted to address unexpected financial and business contingencies.
Preserve lines of credit
Your lease payments won’t interfere with bank credit lines, allowing you to preserve these funds for other business priorities.
Despite selling your equipment, you’ll continue using it to generate revenue. A buyback option at the end of the equipment lease provides a hedge, allowing you to access cash you need now. There’s also the option to reclaim ownership of the equipment at the end of the lease.
Potential income tax benefits
Like most equipment leases, a sale-leaseback offers potential tax advantages. An accountant may tell you that instead of your equipment appearing as a large asset on your balance sheet, you may be able to write off your lease payments as an expense. Speak with your accountant for more information.
No down payment
Unlike traditional bank financing, you won’t need a down payment to finance your equipment after your sale-leaseback.
December is a popular time for sale-leasebacks as many people are revising their balance sheets before the year end. If you have a large asset that’s going to increase your worth, act now to flip it to the other side of the balance sheet with a sale-leaseback.
By providing easy access to capital through a simple transaction, sale-leasebacks replenish your cash flow and keep you financially flexible to tackle new business opportunities. It should be part of your business’s growth strategy.