Equipment Sale and Leaseback: Unlocking Working Capital

Sale and leaseback involves selling equipment you own outright to a finance company, then immediately leasing it back for continued use. You receive a lump sum (typically 50-80% of current market value) and make regular lease payments. At lease end, you may have options to purchase, extend, or return the equipment. This transaction converts fixed assets into working capital.

With sale and leaseback, ownership transfers to the financier. With asset refinancing, you retain ownership while borrowing against the asset. Sale and leaseback may provide more funds as it is based on market value rather than lending criteria. Refinancing maintains your ownership position. Choose based on whether ownership is important to your business.

Advance amounts typically range from 50-80% of current market value depending on asset type and condition. Lease terms are commonly 3-5 years with monthly payments. Interest rates vary but expect 8-15% p.a. depending on asset type and your business profile. Balloon payments or buyback options at lease end provide flexibility. Documentation fees and valuation costs apply.

Good candidates for sale and leaseback include trucks and transport equipment with significant residual values, construction and earthmoving equipment, manufacturing machinery with ongoing useful life, medical and diagnostic equipment, agricultural machinery, and technology assets with reasonable remaining life. Assets should be unencumbered (owned outright or mostly paid off).

Immediate access to working capital without disrupting operations. Lease payments are typically tax deductible. Off-balance sheet treatment may improve financial ratios. No property security required, avoiding personal guarantee exposure on property. Predictable fixed payments for budgeting. Potential to fund growth or pay off more expensive debt.

Cash flow pressure requiring immediate working capital. Opportunity to invest in growth with higher returns than lease cost. Need to pay ATO debt or urgent creditors. Reluctance to mortgage property for business finance. Equipment has significant value but business needs liquidity. Bridging cash flow while awaiting other finance or receivables.

Lease payments are generally tax deductible as operating expenses. The sale may trigger capital gains tax if the sale price exceeds the written-down value. Consult your accountant about the specific implications for your situation, including GST treatment. The tax position depends on whether the lease is classified as finance or operating for accounting purposes.