Why Business Owners Are Using Equipment Sale Leaseback Financing

Why Business Owners Are Using Equipment Sale Leaseback Financing

If you are a business owner and you are not yet familiar with sale leaseback financing, it could be quite beneficial for your business to explore. This type of financing is a way to turn qualifying equipment into an influx of cash that can be reinvested into your business.

Companies that own heavy construction equipment or industrial equipment can borrow up to half of the liquidation value of that equipment, and then pay it back with interest over a period of 3-5 years. These terms can be even better than those with a standard small business loan, which is one reason to consider this option. While the equipment serves as collateral, the company can continue using it to generate revenue. The company receives a lump sum of cash that can be used to purchase additional equipment or hire more employees, which can also contribute toward revenue.

Business owners considering sale leaseback financing should keep in mind that liquidation value is not the same as fair market value. Liquidation value is the estimated proceeds from sale of the equipment at auction. Business owners should also be confident that they can make all the monthly payments in full and on time, otherwise the equipment may be seized to satisfy the debt. Because the size of the debt is half the liquidation value of the equipment, defaulting can result in a significant loss for a business.

A business owner with a clear plan for expansion who simply needs more money to put that plan into action is well-positioned to take advantage of the benefits of sale leaseback financing. This business expansion plan should account for coverage of monthly operating expenses as well as payments on the loan. The best case scenario for a business is to be able to increase revenue generation as soon as possible after receiving funds.

Of course businesses with excellent credit have multiple options at their disposal for raising cash, but this may be one avenue that they have not yet used. For business with credit that may pose limitations in other circumstances, this sort of financing may provide them with an opportunity where they might not otherwise be able to generate funds.

Based on these various advantages, sale leaseback financing is worth considering for business owners. For those whose credit may not support a traditional loan but who have a clear plan for business expansion and revenue generation, it can be a smart move to receive the cash infusion necessary to move forward.