Sale leasebacks on equipment are very common during a recession. They are usually utilized by businesses that need to make financial adjustments quickly and ensure they have enough cash on-hand.
In this blog, we’re going to show you how a sale leaseback on your equipment can help you during a recession and help you get some extra cash back into your business.
What is a sale leaseback?
A sale leaseback is defined by Investopedia as, “an arrangement in which the company that sells an asset can lease back that same asset from the purchaser.” In other words, you can sell your equipment to a bank or financial services company in exchange for cash, and then lease back the equipment you sold them. Sale leasebacks are great options during a recession or economic downturn because they can provide an infusion of cash to keep the business going.
It’s common to do a sale leaseback on equipment that is owned outright by the business, but it is completely possible to refinance the equipment that still has debt on it with a sale leaseback as well.
When should I consider a sale leaseback and what are the benefits?
You should consider a sale leaseback if you have a need for cash in the near future to keep your business afloat and cash-positive.
Here are a few key benefits of sale leaseback to consider:
- You can usually qualify for one fairly easily, even with bad credit, if the equipment has held its value well
- If you are refinancing an equipment loan, lower monthly payments are possible so that you can keep more cash inside the business during a recession
- You can use the cash you get from a sale leaseback for any struggling part of the business you want
What are the risks of a sale leaseback?
Sale leasebacks can be risky for a variety of reasons. Here are a few you should consider:
- An equipment sale leaseback or equipment refi is still debt, so your monthly payments may go down, but you are ultimately increasing your financial leverage.
- There are usually prepayment penalties unless the lessee and lessor agree on the prepayment before the lease begins.
Do you need help with an Equipment Sale Leaseback or Equipment Loan Refinancing?
IFSC has been helping companies with sale leasebacks for nearly 40 years. We would love to help you determine whether a sale leaseback is a good option for you.
Here are some things you should know if considering IFSC for a sale leaseback:
- We primarily finance big ticket equipment such as: printing presses, heavy machinery, machine tool machines, construction equipment like pavers, amusement park equipment, etc.
- We usually will not consider a sale leaseback on a large number of small items (ex: 1,000 laptops, desks, etc.) and we do not finance sale leasebacks on real estate or buildings
- The total sale leaseback proceeds, or total equipment refinancing amount, will be determined by the Orderly Liquidation Value or the Forced Liquidation Value.
Since 1981, IFSC’s motto has been “Your Success is Our Success.” To get started on a sale leaseback or equipment refinancing, please Apply Here or call 847-549-0100.