Leaseback Financing: Monetizing Your Equipment for Working Capital

For middle market companies that are looking for working capital to help them grow in the new economy, sale leaseback financing offers some very attractive advantages over other products and instruments. The idea is relatively simple: assets, whether they are equipment or real estate, are sold to a buyer who then leases them back to the company for use. This allows companies with a substantial investment in assets to gain access to large amounts of working capital for immediate use, and it also sets up some perks and advantages that are not available unless you are leasing your equipment.

The first, biggest advantage is the tax value. Most leases are fully deductible from your taxable income, which is not the case when you are paying on loans or when you are the full owner of the equipment. Selling your equipment and then leasing it back also means you no longer have to worry about depreciation, so it simplifies tax calculations even as it provides larger deductions.

Looking at depreciation from an industry standpoint, sale leaseback financing is an especially advantageous way of handling equipment with a fairly short lifespan or that is likely to be made obsolete by technological innovation. The shorter terms and regular expense of the lease, coupled with the negotiating power you have as a seller-lessee negotiating with and investor, makes sale leaseback financing an especially powerful way to deal with that planned obsolescence. Looking ahead in that way means knowing you will have access to future generations of equipment as you need them.

When you use this strategy for equipment with a longer lifespan, especially equipment you have a fair amount of equity in, you get the opportunity to access a large amount of working capital at once, at fairly low risk, and without worrying about repayment, since the lease is a predictable tax deductible business expense. That provides resources to a company for expansion, remodeling, rebranding, or even the acquisition of competitors, making it easier for middle market companies to spread their wings and become larger, more nationally recognized brands.

Whether you are structuring to meet your future equipment needs or consolidating your financial resources to make a bold and competitive move to gain market share and expand your operating territory, sale leaseback financing represents one of the lowest risk ways to get the equity back out of your equipment, and its tax advantages simply can’t be argued with. If your business owns a lot of assets, this is something to look into.

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