How Leaseback Financing Can Help Struggling Businesses
Without enough cash, businesses cannot hire employees, buy merchandize, pay their bills or perform any of their other daily operations. While getting a loan from a bank may be an option to some, not all businesses have good enough credit history to qualify for a loan. Fortunately, if your business possesses large equipment, you may be able to qualify for leaseback financing (aka sale leaseback).
How Does It Work?
Your business can usually receive a loan for the amount of fifty percent or less of the value of your equipment, though the specifics depend on your credit and your ability to pay back the loan. Then, you will pay back the loan via monthly payments for certain amount of years. If you are unable to pay back the loan, the equipment may get taken as collateral.
Benefits of Leaseback Financing
Sale leaseback is a great way for businesses that own the proper type of equipment to receive an influx of money into their business. Even businesses that don’t have great credit history can qualify. Therefore, a business with limited funds may not need to choose between purchasing new equipment and spending money on other business needs. You may use the money to buy the equipment and then use sales leaseback to receive the additional money for other expenses. Moreover, the terms of loan repayment can be very favorable with smaller payments spread out over a longer period of time. Furthermore, the monthly loan payments may be completely written off on your tax return, which can reduce your tax income and, therefore, your tax liability.
What Type of Equipment Qualifies?
In order for equipment to qualify for leaseback financing, it needs to meet certain criteria. First, the equipment should be specific enough to possess a serial or VIN number that is registered to you or your business. A random copy machine, for example, will not qualify. It should also be valued at several thousands of dollars at least. Therefore, trucking and construction equipment or real estate will usually qualify. A laptop, on the other hand, will not. Finally, the equipment should be desirable on the market.
Since the equipment may be used as collateral, the lender needs to know they can receive money on the sale of the equipment to cover their loan.
Leaseback financing can be a good way for a struggling business with large, valuable equipment to receive extra cash. It gives the opportunity for such a company to receive all the necessary tools to operate a successful business.