Equipment sale leaseback financing is popularly used in real estate property but other equipment can be used to maximize its benefits for you and your lessor.
Equipment sale leaseback financing allows you to raise capital while still using the equipment needed to keep your business up and running. This is an arrangement that can create a significant source of funds which you can use to improve other areas of your business. This can include anything from upgrading equipment, buying off a partner, paying off a lender or even using it as working capital.
This is how equipment sale leaseback financing works: You convey the title of your equipment at an agreed upon price to a financial institution in exchange for money. From there, you make lease payments to the equipment leasing company and in return you get your cash insertion.
Benefits Of Equipment Sale Leaseback Financing
Many companies benefit from equipment sale leaseback financing in a number of ways especially if they do not qualify for traditional bank financing. For instance, you can use it if you want to enhance your balance sheets, provide tax benefits, restructure troubled financials, finance growth and preserve existing credit lines.
It’s a very solid approach to raising cash for your company. From a tax perspective, equipment sale leaseback financing offers you the chance to structure the transaction as a taxable sale. It can be offset by net operating losses which may otherwise expire if they are not used.
If you are in an Alternative Minimum Tax situation you can also benefit from equipment sale leaseback financing because lease payments are not considered preference items. You should, however, contact a professional tax advisor or tax attorney before making any tax decisions based on equipment sale leaseback transactions.
Does Your Business Qualify For Equipment Sale Leaseback Financing?
You may qualify for equipment sale leaseback financing if:
- You have a FICO score of 620+
- You have been in business for at least two years
- You are the owner of the equipment
- Your financial statements clearly show that you can make lease payments
- You don’t have any open bankruptcies or open tax liens
Each equipment leasing company has its own minimum transaction size so you should compare provisions for each of them. It’s important to note that if you are a restaurant owner, you need to have a FICO score of 650+ and your restaurant has to be in operation for more than two years in order for you to qualify for equipment sale leaseback financing.
What Type Of Equipment Qualifies?
Some companies may only accept equipment that has a high value such as specialized equipment or industrial machines. Some companies may decline office equipment such as printers and computers. If you own a beauty salon or a gaming arcade, you may also not be eligible for sale leaseback financing. This is because such equipment is believed to have low market value, gets obsolete very fast or gets worn out very quickly.
Different equipment leasing companies specialize in different types of equipment so you need to find one that specifically deals with your type of equipment.
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The Application Process
Compared to other forms of financing, the process of applying for equipment sale leaseback financing is fairly simple. Once you have identified a leasing company that you would like to work with, send them a 1-2 page application complete with a list of the equipment you would like to be considered.
You may not need an appraisal of the residual value of the equipment if it is relatively new and is in good working condition with minimal wear and tear. Send your application to the leasing company and expect a response in 24-48 hours. Once your application is approved, you can get your money in a week or two.
Remember that you are selling your equipment to a leasing company and then leasing it back. This makes the approval process much more straight forward as compared to debt financing transactions, so the entire process takes up much less time.
Some companies might also do site inspection meaning they will want to inspect the condition of the equipment themselves.
If you need cash infusion and you own specialized equipment, you can sell it to an equipment leasing company but still retain it for use in your company.
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