An Equipment Sale Leaseback (SLB) allows your company to free up working capital by selling equipment to a commercial financing firm that then leases it back. The equipment never leaves your business, and the lease terms are customizable to meet your short- and long-term goals.

The process begins with a thorough assessment of the equipment’s value. From there, the following benefits are realized:

1. Flexibility

As mentioned, sale leasebacks allow companies to pocket cash from equipment assets they own free and clear. This money can be invested in working capital, other equipment or even used to cover expenses.

This monetization option also offers flexibility at lease end with the ability to purchase back, continue leasing or return the equipment to the finance company. This provides businesses the opportunity to make strategic business decisions that fit their operational needs and long-term growth strategy.

It’s important to weigh the pros and cons of sale-leaseback versus traditional financing options. A trusted leasing advisor can guide you to a structure that’s appropriate for your specific equipment and financial landscape. Well-structured lease agreements can unlock trapped liquidity for growth without debt, offering significant cost advantages relative to traditional funding alternatives. This includes negotiating lease term and payment levels that align with equipment lifecycles as well as leveraging tax benefits. For example, lease payments are typically viewed as operating expense, which offer significant tax deductions.

2. Tax Benefits

Equipment Sale Leaseback allows companies to pocket cash by selling their equipment, machines, vehicles, and other assets they own free and clear to an independent finance company and then immediately leasing it back for a specified lease term. Oftentimes, these lease payments are considered operating costs, and may be tax deductible depending on the terms of the contract.

Additionally, a sales leaseback arrangement provides valuable financial benefits, such as converting depreciating assets into cash and potentially improving balance sheet ratios by reducing debt capacity. This can be particularly important for life sciences and biotech companies that require expensive analytical instrumentation.

Considering these benefits, it is advisable for businesses to seek professional advice to determine whether or not sale leaseback would be a good fit for their specific needs. Then, if it is, they can move forward with the transaction to gain financing flexibility without any disruptions to their day-to-day operations. At the end of the term, a company can either purchase the asset back, renew the lease, or return it to the finance company.

3. Cash Flow

Leverage the cash locked in your equipment without disrupting your business operations. A sale leaseback allows you to turn your equipment into immediate working capital, allowing you to make the purchases you need for growth.

In a sale-leaseback transaction, your equipment is sold to a financing company and then leased back to you immediately. It is a relatively simple process that can give you instant access to funds for your business needs.

This can be a great way to get that new ice cream machine for your location or the software you need to manage customer relationships. Your financing partner will work with you to determine the right purchase terms for your specific situation and goals.

One common misconception is that only a small group of assets qualify for sale leasebacks, due to strict requirements around valuation, condition and title. A reputable financing partner will assess all the options available to you, including a range of sale-leaseback structures.

4. Remaining Ownership

When properly structured, sale leaseback can unlock trapped cash for growth initiatives without the burden of debt. It also allows companies to monetize equipment with a higher book value that would otherwise not be accessible.

Oftentimes, companies have a lot of equipment on their balance sheet that is not being utilized at full capacity or is reaching the end of its useful life. These assets are often overlooked as potential sources of liquidity. Having the right finance advisor can help identify the best options to monetize your equipment and maximize your financial return.

The key is to carefully evaluate the short and long term needs of your business. We can assist in mapping out 2-3-year equipment investment timelines and assessing working capital models to determine where the potential liquidity gaps that sale leasebacks can bridge might be. We can also help in defining optimal lease durations aligned to equipment lifecycles and optimizing agreements that reflect true operating priorities.