In this article
You own a machine that works hard for your business. It is paid for, it is useful, and it is also sitting on a pile of value you cannot spend. What if you could turn some of that value into cash and keep using the machine? That is the idea behind an equipment sale-leaseback. This guide explains it in plain words, shows a simple example, and lists what to ask before you agree.
What is an equipment sale-leaseback, in plain words?
An equipment sale-leaseback is when you sell equipment you already own to a financing company, and then lease the same equipment back from them. You get cash now, and you keep using the equipment every day. In place of owning it, you now make lease payments.
Think of it as selling your car to a company and then renting the same car back from them. Nothing changes for your daily work. What changes is who owns the machine, and how much cash you have.
Can I get cash out of equipment I already own?
Often, yes, though it depends on what the equipment is worth, its age and condition, and your business. A sale-leaseback is one way to do it. Another is a loan secured by the equipment, which you may hear called equipment refinancing. Our page on asset-based financing explains how borrowing against what you own works.
How much you could get, and on what terms, depends on the lender. Nobody can promise an amount before looking at the equipment and your business.
How does a sale-leaseback work, step by step?
- You pick the equipment you would like to use to free up cash.
- A financing company looks at it. They check what it is, how old it is, what shape it is in and what it is worth.
- You agree on a sale price, and the company pays you.
- You sign a lease to use the same equipment for a set time.
- You make lease payments for the length of the lease.
- At the end, you have choices. These may include buying it back, renewing or returning it. What is possible depends on the agreement.
Example only: A landscaping company owns a large piece of equipment outright. The owner needs cash to hire extra crew for a busy season, but does not want to lose the machine. She sells it to a financing company and leases it back. She gets money right away, and the crew keeps working with the same machine. Her payments continue through the lease. Your situation will be different.
Who might it suit?
A sale-leaseback may be worth a look when:
- You own useful equipment that is in good working condition
- You need cash for something else, such as growth, payroll, stock or a new project
- You would rather free up cash than take on a new loan
- You are happy to keep leasing instead of owning
It may not suit you if you want to own the equipment for the long run, or if the lease payments would be harder to manage than your current situation.
What are the advantages and the things to think about?
What may help:
- Cash you can use right away
- You keep using the equipment you know and trust
- Your other loans or credit lines stay untouched
What to think about:
- You no longer own the equipment, at least until the end
- You now have lease payments, so look at the total you will pay over time
- The sale price may be lower than what you hoped for
- The end-of-term choices matter, so ask about them
For a deeper look at how end-of-lease choices differ, read our guide on $1 buyout vs. fair market value leases.
What do financing companies usually look at?
Every company is different, but these come up often:
- The equipment: type, age, condition and what it is worth
- Proof you own it: papers or receipts showing it is yours and has no other claims on it
- Your business: how long you have been running and how steady your income is
- Your bank statements: they show money coming in and going out
If you are not sure what to gather, our business loan documents checklist is a good place to start.
Questions to ask before you agree
- How is the equipment valued, and who decides?
- What will my lease payments be, and what is the total I will pay over the whole lease?
- What are my choices at the end of the lease?
- What happens if I want to end early or miss a payment?
- Who pays for repairs, insurance and upkeep?
- How will this appear in my books and taxes? Ask your accountant.
Our scorecard for comparing business loan offers is a handy way to put two offers side by side.
Common mistakes to avoid
- Selling equipment you will need to own long term without thinking about the end of the lease.
- Looking only at the cash you receive. The payments that follow matter just as much.
- Not checking who else has a claim on the equipment.
- Skipping your accountant. Sales and leases can affect your taxes.
- Taking the first offer. Compare at least two.
Ready for the next step?
If you own equipment and want to know whether it can work for you, you can book a short call with our team. Tell us what you have and what you need the cash for, and we will talk through your options in plain words. You can also learn about equipment financing, or read our guide on equipment financing vs. leasing.
This post is general information to help you understand your options. It is not personal financial, legal or tax advice. Details, rates and rules can change, so check the latest information before you decide.
