What Is Equipment Sale Leaseback Financing?
You may not be aware that there is another option to obtain an infusion of cash for your business beyond small business loans. Sale leaseback financing is a way to turn your company’s equipment into a source of money. Think of it as a home equity loan for your business.
Equipment that qualifies for financing is typically heavy construction equipment and industrial equipment. Technological equipment is not usually a good fit. Qualifying equipment will have a high liquidation value, meaning that it can be sold at auction for several thousands of dollars. Liquidation value is different from fair market value, and the amount that you can borrow against your equipment will be up to half of the liquidation value. That is another reason why equipment must have a high value in order to qualify for sale leaseback financing.
Your equipment will function as collateral for the loan, which means that it can be taken to satisfy the debt in the event that you do not make the monthly payments in full and on time. The upside is that you can continue to use the equipment in your work during the repayment period, which is usually 3-5 years. These terms can be far more advantageous than those offered with standard small business loans, especially those that require repayment over a much shorter period of time. However, this also means that your business must be prepared to integrate those monthly payments into your operating expenses for several years.
Because an infusion of cash can be extremely valuable to a company that is seeking to expand, sale leaseback financing can provide your business with the nudge it may need to grow. Your business may use the cash to buy additional equipment needed to bid on bigger jobs or hire more workers once you have won those contracts. Regardless of the specifics, it is important to have a clear plan upfront for how you will use the cash to drive growth and increase revenue. This strategy is important for minimizing the risk of default as well as making your business as profitable as possible. In the event that you are unable to make your monthly payments, you may lose both your equipment and your business. Therefore it is key to avoid this catastrophic scenario by planning ahead.
If you have been researching small business loans for your company, you may want to explore sale leaseback financing as well. This option can be a smart way to raise cash for reinvestment into your business, which may allow you to start seeing a return almost immediately and grow your business even more quickly than you may have thought possible.