Equipment Sale Leaseback Financing is a flexible, quick solution for companies to raise working capital and retire debt. Contrary to popular assumption, a wide variety of equipment qualifies for Equipment Sale Leaseback Financing.
Getting Started
There are a variety of ways to free up cash, but one option that can be especially beneficial for life sciences companies is sale leaseback financing. Essentially, the company sells its equipment to a financing partner for fair market value and then immediately leases it back to itself over an agreed upon lease term.
The underlying benefit to this approach is that it allows companies to infuse capital without diluting equity or taking on burdensome debt. Additionally, it allows the company to maintain operational continuity by ensuring that its critical lab equipment remains on site.
Strategically structured, sale leasebacks can unlock trapped capital and liquidity for working capital optimization, new product development and overall growth acceleration. The process starts with an assessment of your equipment’s value by a professional appraiser and the creation of an agreement between you and your financing partner. The agreement defines the lease terms, payment schedules and conditions for equipment use.
Underwriting
Businesses often turn to sale-leasebacks to infuse equipment with cash, leveraging the unused asset value and freeing up lines of credit for other needs. Unlike debt, lease payments are typically classified as operating costs, potentially providing significant tax advantages.
Despite a common misperception that only a narrow range of assets qualify, today’s leasing market accepts a broad range of equipment and specialized machinery. Specialized lease financing advisors can guide you to optimal terms aligned with equipment lifecycles, operational forecasts and growth initiatives.
Once the equipment has been appraised, your lender will work with you to shape payment amounts, financing rates and lease terms that comfortably meet your operating realities. This process can take a few weeks to several months depending on the value of the equipment and the complexity of the transaction. Once complete, a formal sale-leaseback agreement is documented and the transaction is closed. The equipment remains in the custody of your financing partner until it is leased back to you at the end of the term.
Due Diligence
Due diligence is the process of investigating and verifying information about a potential investment opportunity to make informed, prudent decisions and mitigate risks. It also helps ensure that investors pay a fair price based on an asset’s actual value.
Investment due diligence encompasses a wide range of assessments, from financial analysis to market research and operational assessment. It includes evaluating the integrity of management teams, assessing a company’s inventory of assets to determine if ownership is properly documented and identifying any outside claims to ownership.
Soft due diligence investigates business and human rights practices to avoid any inadvertent violations of the UN’s Guiding Principles on Business & Human Rights. It examines employee contracts and identifies policies that might violate labor laws, for example, by discriminating against or harassing employees. It also examines a company’s real estate holdings to make sure they comply with local codes and zoning laws.
Closing
A Sale and Leaseback is a financing transaction that involves selling a piece of equipment to an equipment leasing company, who then leases it back to the original owner for a specified period of time. The lease term and payment structure are based on an initial assessment of the business credit, cash flow and collateral value.
This strategy can unlock trapped capital and liquidity to fuel growth, working capital optimization, and new product development. It also provides a potential tax advantage, as lease payments may be deducted as business expenses and can lower the impact on balance sheet ratios. However, it’s important to consider your entire financial landscape and plan accordingly. It is also crucial to work with a financing partner who can customize a solution that best fits your business goals. This includes defining an optimal lease duration aligned with equipment lifecycles, as well as negotiating “bend points” for payments to accommodate seasonal cash flow fluctuations.