Sale and leaseback of equipment is a financial option available to businesses that is something of a hidden secret!
It provides businesses with the opportunity to raise funds against business assets that they have purchased and inject funds back into the business.
However, the timing of the loan application and drawn down is crucial.
Why a Sale and Leaseback?
At times, if the business has funds available and urgently needs equipment to meet its operational needs, the owners will choose to pay cash.
However, on reflection they may decide, it would have been better to finance the equipment and retain the funds within the business.
This is when, providing certain conditions are met, sale and leaseback of the equipment may be an option.
How does a Sale and Leaseback Work?
A sale and leaseback arrangement is not unlike normal equipment financing:
- You retain ownership of the asset, and the Lender takes a charge over the goods to secure the borrowing we need to remove this because if it is done as a Lease, the lender has the title of the goods.
- Depending on the type of equipment, a valuation from a registered valuer may be required
- Proof of payment needs to be provided
- Terms typically range up to 5 years depending on the type of equipment being financed
- It may be possible to also include a balloon or residual, to reduce the monthly repayments
- A goods inspection by the Lenders and/or its agent (e.g. Finance Broker) will be required prior to drawdown on the facility
Who Will Finance a Sale and Leaseback?
Most Lenders who finance equipment will also entertain a sale and leaseback arrangement.
That said, if it is to be financed by a major bank, the loan generally needs to be drawn down within 30 days of the original purchase.
Other Lenders will do up to 12 months, however, the interest rates applied will be higher
Types of Equipment Suited to Sale and Leaseback
Sale and leaseback is suited to assets such as:
- Agricultural machinery
- Construction machinery
- Commercial vehicles and equipment, both heavy and light
- Trucks
- Motor Vehicles
How Much Can I Borrow?
How much you can borrow typically depends upon the type of equipment you are seeking to refinance. It will be in the range of 50% to even 100% of the current value.
(Whether the sale and leaseback is approved, will also be dependent on your ability to demonstrate the business can afford the proposed repayments).
The Benefits of Sale and Leaseback
Key benefits of the sale and leaseback agreement include:
- It can re-inject funds back into the business to support ongoing operations and growth
- Both the interest rate and term are fixed which makes budgeting easier
- As you retain ownership of the asset, interest and depreciation are usually tax-deductible
Why use an Equipment Finance Broker
The major advantages of using an Equipment Finance Broker to arrange a sale and lease-back include:
- Greater choice and more options. Instead of one Lender, you have access to our panel of Lenders, which includes all the major Banks
- You are dealing with a specialist who understands the market and the different requirements of Lenders
- Saves time in seeking quotes and negotiating with different Lenders can absorb a huge amount of time. Using an Equipment Finance Specialist saves an enormous amount of time
If you would like to learn more about how equipment sale and lease back works, or you would like to chat about equipment finance, don’t hesitate to get in touch.
