The Pros and Cons of Leaseback Financing

The owners of start-ups may have the knowledge and the dreams to keep things moving forward but they don’t always have the capital to be effective over the long-term, or until regular revenue starts coming in.

That’s why companies that own their own equipment should consider an innovative financing approach known as a sales leaseback. The principle of leaseback financing is for Company A to sell of their property to Lender A. Lender A provides them with funds for the transaction, typically up to 50 percent of the value of all pledged assets, and then leases the property back to Company A for a certain amount of time.

Leaseback financing can be used for real estate transactions but is especially useful when it involves heavy equipment and machinery.

Here’s why leaseback financing is useful.

Longer terms.

While some traditional business loans may have shorter terms and larger regular payments, leaseback financing can potentially allow access to more funds and a longer period of time.

More collateral.

Some lenders may be reluctant to fund a start-up due solely on the basis of “big dreams” and “potential.” But someone with no credit or poor credit may qualify based on the equipment available.

Possible tax advantages.

Lease payments may be able to be deducted as business expenses or operating costs, making the arrangement even more appealing.

Companies that are willing to consider leaseback financing for their equipment are encouraged to look at their inventory. While they may not get fair market value or make a big profit for their machinery, they may get liquidation or auction value. But this still might be decent.

Potential lenders also may look at larger items, like heavy trucks or bulldozers, but may not be interested in office equipment like desks or computers.

This type of financing isn’t for everyone. There’s generally little protection if you default – since the lender officially owns the equipment, they may repossess, leaving the company in even worse financial conditions.

For more assistance in discussing the best leaseback financing options for your organization, visit Clear Capital Group.


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