What Is a Sale-Leaseback, and Why Would I Want One?
Once in awhile on this blog site, we address regularly asked concerns about our most popular funding options so you can get a much better understanding of the many services readily available to you and the benefits of each.
This month, we're concentrating on the sale-leaseback, which is a funding choice numerous companies might be interested in right now thinking about the current state of the economy.
What Is a Sale-Leaseback?
A sale-leaseback is a distinct kind of equipment funding. In a sale-leaseback, often called a sale-and-leaseback, you can sell a property you own to a leasing company or lender and after that lease it back from them. This is how sale-leasebacks typically operate in industrial realty, where companies frequently utilize them to free up capital that's bound in a real estate financial investment.

In real estate sale-leasebacks, the financing partner typically develops a triple net lease (which is a lease that requires the renter to pay residential or commercial property expenditures) for the business that just sold the residential or commercial property. The financing partner ends up being the proprietor and collects lease payments from the former residential or commercial property owner, who is now the tenant.
However, devices sale-leasebacks are more flexible. In an equipment sale-leaseback, you can promise the property as security and borrow the funds through a $1 buyout lease or devices financing arrangement. Depending on the type of transaction that fits your requirements, the resulting lease could be an operating lease or a capital lease
Although real estate business regularly utilize sale-leasebacks, company owners in numerous other industries may not understand about this funding choice. However, you can do a sale-leaseback deal with all sorts of possessions, consisting of commercial equipment like building and construction devices, farm equipment, manufacturing and storage possessions, energy solutions, and more.
Why Would I Want a Sale-Leaseback?

Why would you wish to lease a tool you currently own? The main reason is capital. When your business needs working capital right away, a sale-leaseback plan lets you get both the money you require to run and the equipment you need to get work done.
So, let's say your business doesn't have a credit line (LOC), or you need more working capital than your LOC can supply. In that case, you can utilize a sale-leaseback to raise capital so you can start a new line of product, buy out a partner, or get ready for the season in a seasonal business, among other reasons.
How Do Equipment Sale-Leasebacks Work?
There are great deals of various ways to structure sale-leaseback offers. If you deal with an independent funding partner, they need to have the ability to develop an option that's tailored to your service and helps you attain your short-term and long-term objectives.
After you sell the equipment to your financing partner, you'll participate in a lease agreement and make payments for a time duration (lease term) that you both settle on. At this time, you become the lessee (the party that pays for making use of the asset), and your financing partner ends up being the lessor (the party that receives payments).
Sale-leasebacks usually involve repaired lease payments and tend to have longer terms than lots of other kinds of funding. Whether the sale-leaseback shows up as a loan on your company's balance sheet depends upon whether the deal was structured as an operating lease (it won't reveal up) or capital lease (it will).
The significant distinction between a credit line (LOC) and a sale-leaseback is that an LOC is normally protected by short-term properties, such as receivables and stock, and the interest rate modifications in time. A service will make use of an LOC as needed to support current money flow requirements.

Meanwhile, sale-leasebacks normally involve a set term and a fixed rate. So, in a common sale-leaseback, your business would get a lump sum of cash at the closing and then pay it back in monthly installments with time.
RELATED: Business Health: How Equipment Financing Can Help Your Cash Flow
How Much Financing Will I Get?
Just how much cash you get for the sale of the equipment depends upon the equipment, the monetary strength of your service, and your financing partner. It's typical for a devices sale-leaseback to provide in between 50-100 percent of the equipment's auction value in cash, but that figure might alter based upon a wide range of aspects. There's no one-size-fits-all guideline we can offer; the very best way to get an idea of how much capital you'll receive is to get in touch with a funding partner and talk to them about your unique circumstance.
What Types of Equipment Can I Use to Get a Sale-Leaseback?
Frequently, businesses that utilize sale-leasebacks are business that have high-cost fixed properties, like residential or commercial property or large and expensive tools. That's why businesses in the realty market love sale-leaseback funding: land is the ultimate high-cost fixed asset. However, sale-leasebacks are also used by business in all sorts of other markets, including building and construction, transportation, production, and agriculture.

When you're attempting to decide whether a tool is a good candidate for a sale-leaseback, think big. Large trucks, important pieces of heavy equipment, and titled rolling stock can all work. However, collections of little items probably won't do, even if they amount to a big amount. For example, your financing partner more than likely won't want to handle the headache of assessing and potentially selling stacks of secondhand workplace devices.
Is a Sale-Leaseback Better Than a Loan?
A sale-leaseback might look really similar to a loan if it's structured as a $1 buyout lease or equipment finance agreement (EFA). Or, if your sale-leaseback is structured as a sale and an operating lease, it might look extremely various from a loan. Since these are really different products, attempting to compare them resembles comparing apples and oranges. It's not a matter of what product is better - it has to do with what fits the requirements of your company.
With that stated, sale-leaseback deals do have some distinct advantages.
Tax Benefits
With a sale-leaseback, your business may get approved for Section 179 benefits and bonus offer depreciation, amongst other potential advantages and reductions. Often, your funding partner will have the ability to make your sale-leaseback very tax-friendly. Depending on how your sale-leaseback is structured, you might have the ability to cross out all the payments on your taxes.
RELATED: Get These Tax Benefits With Commercial Equipment Financing
Lower Bar to Qualify
Since you're bringing the equipment to the table, your financing partner doesn't need to take on as much risk. If you own important devices, then you might be able to get approved for a sale-leaseback even if your business has undesirable products on its credit report or is a start-up organization with little to no credit report.
Favorable Terms

Since you're pertaining to the deal with security (the devices) in hand, you may have the ability to shape the regards to your sale-leaseback contract. You ought to have the ability to work with your funding partner to get payment amounts, funding rates, and lease terms that easily satisfy your requirements.
What Are the Restrictions and Requirements for a Sale-Leaseback?

You do need to fulfill 2 main conditions to certify for a sale-leaseback. Those conditions are:
- You require to own the devices outright. The equipment should be totally free of liens and must be either completely settled or really close.
- The devices requires to have a resale or auction worth. If the devices doesn't have any reasonable market value, then your financing partner will not have a reason to buy it from you.
What Happens After the Lease Term?
A sale-leaseback is normally a long-term lease, so you'll have time to decide what you wish to do when the lease ends. At the end of the sale-leaseback term, you'll have a few choices, which will depend upon how the deal was structured to begin. If your sale-leaseback is an operating lease where you gave up ownership of the asset, these are the normal end of term choices:
- Work with your funding partner to renew the lease.
- Return the devices to your funding partner, without any further obligations
- Negotiate a purchase rate and purchase the equipment back from your financing partner
If your sale-leaseback was structured as a capital lease, you may own the devices free and clear at the end of the lease term, without any additional obligations.
It depends on you and your funding partner to decide in between these options based on what makes one of the most sense for your business at that time. As an extra alternative, you can have your funding partner structure the sale-leaseback to include an early buyout option. This alternative will let you bought the equipment at an agreed-upon fixed price before your lease term ends.
Contact Team Financial Group to Find Out About Your Business Financing Options
Have concerns about whether you receive equipment sale-leaseback financing or any other type of financing? We're here to help! Call us today at 616-735-2393 or fill out our contact kind to talk with a funding specialist from Team Financial Group. And if you're ready to obtain financing, submit our quick online application and let us do the rest.
The content provided here is for educational purposes just. For individualized monetary recommendations, please contact our business financing professionals.