Sale Leaseback Equipment Financing is a strategic way to infuse your business with capital. It involves selling a piece of lab equipment to a leasing company for its fair market value, and then leasing it back through Sale Leaseback Equipment Financing.
Your financing partner will work with you to create a lease structure with terms that are comfortable for your business.
Tax Deductions
A company that owns equipment can reap significant tax benefits when it chooses to enter into a sale leaseback (SLB) arrangement. By pledging their existing equipment as collateral, companies can access capital without impacting their credit. Moreover, the lease payments can be structured as operational expenses, further lowering their taxable income.
In addition, if the initial purchase of equipment qualifies for a resale exemption, sales taxes are typically only paid once. However, the company must still pay sales tax on each lease payment made over the term of the contract.
Other potential tax benefits include Section 179 and bonus depreciation deductions, deductible interest expense, and customizable lease terms. Proper documentation and professional guidance are vital in aligning tax strategy with financial goals. With careful planning, growth-driven life sciences companies can reap the benefits of sale leaseback equipment financing.
Liquidity
A sale leaseback is a strategic finance solution that monetizes your existing equipment and frees up cash to invest in your short term goals and growth initiatives. In a sale leaseback, you sell the equipment that you currently own to a financing company for fair market value and then lease it back.
For start-ups that require lab equipment for research and development, sale leasebacks allow you to free up cash by selling the equipment at its liquidation or fair market value to a leasing company. The leasing company then leases it back to you for a set period of time.
This financing technique is not well-known to small businesses, but it can be an effective way of unlocking the equity in your capital equipment without triggering capital gains tax. It can also be a good way to mitigate risk by diversifying your funding arrangements. You may also be able to optimize your tax deductions by structuring the transaction strategically.
Reduced Risk
Unlocking trapped potential in existing assets can be a huge financial boost. This cash infusion can be used to invest in expansion, capitalize on time-sensitive opportunities or bolster operational reserves in the face of unforeseen demand.
It can also be leveraged to replace obsolete equipment and improve productivity, enabling better alignment of capital allocation with operating forecasts. The sale leaseback structure can even offer built-in tax savings, since lease payments are generally fully deductible as interest expense.
Contrary to the common misperception that only a narrow group of assets qualify for sale-leasebacks, virtually any equipment that is owned free and clear can be considered for a sale-leaseback. Large trucks, valuable pieces of machinery and titled rolling stock are all fair game as lessors consider valuations, condition, title and market conditions in determining acceptable assets. The financing partners also work together to design payment amounts, leasing terms and other variables that are aligned with the business’s operating reality.
Flexibility
An independent finance company specialized in sale leaseback structuring can offer a more flexible process for qualifying for this form of financing. Unlike traditional equipment financing, sale leasebacks involve selling existing equipment at fair market value to a leasing company. The financing company then leases the equipment back to you for a period of time. This allows you to monetize assets without having to sell them or use capital from external sources, opening pivotal funding flexibility.
This arrangement works well for larger pieces of equipment whose value stems from utility versus commoditization, like metal fabrication machines or telecommunication switches. It also makes sense for companies that need to upgrade old technology quickly or can’t qualify for a loan due to less-than-perfect credit. During the sales leaseback process, you can negotiate flexible options to purchase the equipment at the end of the term or extend the lease. This flexibility provides peace of mind at the end of the term and helps you to maintain operational continuity.