THE SALE-LEASEBACK:
USING YOUR EQUIPMENT TO ACHIEVE GREATER GOALS
The growth period of any business can be a double-edged sword. On the one hand, the trendlines are up and you need more space, people, and equipment to increase your core activities. On the other hand, you need working capital to get more space, people and equipment to fuel that growth.
Like Roman playwright, Plautus famously wrote, “you must spend money to make money.”
Enter the “sale-leaseback” – an agreement where a financing company (like North Star Leasing) purchases equipment a business owns outright, then leases that equipment directly back to the business without any interruption in use. This provides the business an immediate infusion of cash, and at the end of the lease term, the business simply owns the equipment outright again.
A sale-leaseback is one of the quickest methods for a company to raise working capital or retire debt, but business experts advise that a company should have a good reason to make a sale-leaseback. If there’s a need, say, to repay debt, to purchase another company, or to invest in technology, a sale-leaseback makes good sense.
In some ways, said Jay Conder of North Star Leasing, a sale-leaseback is essentially like a home equity loan – you’re pulling cash out of something valuable you own and putting that money back to work for you.
“It’s leveraging the equity of a current asset in a strategic way to get cash back into your hands,” said Conder. “I just completed one for a brewery that was building a second location and needed some money for the real estate and some additional marketing. That’s stuff we can’t fund at North Star Leasing, but when the brewery did the sale-leaseback, they could apply that cash into whatever they needed.”
North Star Leasing also structures sale leasebacks programs at the beginning of a funding requests that allow businesses to recapture any initial investment or down payment required to get the equipment purchased.
Additionally, there’s no requirement at North Star Leasing that a business wanting to explore a leaseback opportunity be a current customer. All that’s required is equipment that’s value might translate back into cash that can fuel further growth.
For businesses looking to increase liquidity, optimize cash flow and improve their balance sheets, equipment sale leasebacks may make good sense. For businesses that need flexibility in structuring financial matters, leveraging the equity in your current assets is a strategic way to procure capital for growth or restructuring.