Businesses have a financial choice that is a well-kept secret: the Equipment Sale-Leaseback!
Businesses can borrow money against properties they’ve bought for their companies and reinvest the money in the company.
The timing of the credit application and drawdown, however, is essential.
Exactly why a sale and leaseback?
- The owners sometimes pay in cash if the company has the money and needs the equipment immediately to run its business.
- On second thought, they might decide it would have been better to finance the equipment and keep the money in-house.
- At this point, the sale and leaseback of the equipment may be an option if specific requirements are fulfilled.
What’s the Process of a Equipment Sale-Leaseback?
Normal equipment funding is not dissimilar from a sale and leaseback arrangement:
- You continue to own the asset, but the Lender has a charge placed to secure the borrowing.
- This charge must be removed because the Lender would own the products outright if it were done as a lease.
- Depending on the kind of machinery, a registered valuer’s valuation may be necessary.
- You must present proof of payment.
- Depending on the equipment financed, terms can last five years.
- It might be possible to lower the monthly payments by adding a balloon payment or residual.
Before drawing down on the facility, the Lender and its agent (such as a finance broker) must examine the goods.
Who will finance a sale and leaseback?
- Most lenders who fund equipment will consider a sale and leaseback deal.
- However, if a major bank is going to finance it, the loan must typically be repaid within 30 days of the initial purchase.
- Other lenders will extend the loan term up to 12 months, but the interest rates will be higher.
- Equipment Categories Suitable for Selling and Leaseback
- A sale and leaseback are appropriate for certain properties, including:
Construction equipment - Trucks and other commercial vehicles, both large and light
- Motorized devices
How much money may I borrow?
Your ability to borrow money usually depends on the kind of equipment you want to refinance. It will be between 50% and 100% of what it is now.
You must show the company can handle the proposed repayments for the sale and leaseback to be approved.
The Advantages of Sale-Leaseback
The sale and leaseback arrangement has several key advantages, including:
- It can reinvest money in the company to support ongoing activities and expansion.
- Because the interest rate and duration are both fixed, budgeting is made simpler.
- Tax deductions are typically available for interest and depreciation if you own the item.
Why use a broker for equipment financing
The following are the main benefits of working with an equipment finance broker to organize a sale and leaseback:
Greater choices and choice. You can access our panel of Lenders, which includes all the big Banks, instead of just one Lender.
You are working with a specialist familiar with the industry and the various lending requirements.
Obtaining quotes and negotiating with various Lenders can take up a significant quantity of time. Working with an equipment finance specialist saves a lot of time.
Please get in contact if you have any questions about equipment finance or would like more information about how equipment sale and lease back functions.
