If you have used equipment that is free and clear and still has considerable remaining useful life, then we may be able to free up some of the equity you have in the asset with a sale and lease back transaction.
The refinancing of used equipment through a sale and leaseback transaction involves an equipment financing company to purchase your assets from you in return for cash and an equipment lease.
You will repay the cash received over time through your monthly lease payments and at the end of the lease term, you can purchase the assets back for a nominal amount.
Once again, this can only be considered on solid, commodity based assets, with significant useful life available.
Common equipment items that can be refinanced after any initial funding has been repaid would include forklifts, tractors, and different types of heavy machinery.
Typically, an equipment leasing company will only consider this type of financing scenario if the borrower or lessee is financially stable and using the additional capital to fund growth or clean up the balance sheet.
If a business is in financial distress, this can still be an option, but only through asset based lenders that are closely aligned with liquidators in the event that the business fails after a sale and lease back transaction has occurred.
For capital intensive businesses, the ability to finance existing equipment can be an ideal way to increase the available working capital to the business to generate more sales and increase profitability.
In terms of how much capital you can generate from a sale and lease back transaction, a leasing company will typically finance off of a forced liquidation value appraisal, with leverage being around 50% of the liquidation value.
So if you have a piece of equipment that you think is worth $100,000, the forced liquidation value may be $80,000 and the lending or leasing value $40,000.
While this may seem like very conservative financing, this is used equipment and the leasing company wants to make sure that there is sufficient equity in place to cover off their financing risk.
Unlike most equipment financing transactions that can be assessed and funded in a few days, a sale and lease back transaction will typically take a bit longer as a third party appraisal of the assets is likely going to be required by the equipment financing company to properly assess the financing request.
If would like to explore refinancing your used equipment, give us a call and we’ll go through your options with you and get all your questions answered right away.