Extended capital-markets CFO
An equipment sale-leaseback involves selling eligible equipment and leasing it back for continued use. It can convert capital tied up in operating assets into liquidity. The tradeoff is a new payment obligation and a change in ownership rights, so compare the entire agreement with borrowing against the equipment or keeping it unfinanced.
Begin with the equipment you intend to keep
A useful candidate is a clearly identified, operating asset with a credible remaining service period. Serial numbers, installation dates and maintenance records help establish what is being financed. A fleet nearing retirement and a recently installed production line should not share the same assumed financing term.
Value the transaction after deductions
A proposed purchase price is not the cash available for your next investment. Repayment of existing asset debt, closing costs and any reserves reduce liquidity. Ask for a complete sources-and-uses schedule and a payment schedule through the final obligation, including purchase or return provisions.
- Compare equal funding amounts and the same evaluation date.
- Include insurance, maintenance and end-of-term costs.
- Identify release requirements under existing lender agreements.
Market reference: ELFA: questions to ask before financing equipment.
Separate accounting from the financing pitch
Do not assume a sale-leaseback removes obligations from the balance sheet. Under US GAAP, Topic 842 generally recognizes both operating and finance leases on the lessee's balance sheet. Whether a transfer qualifies as a sale and the resulting accounting require transaction-specific advice.
Market reference: FASB: Leases, Topic 842.
Know when an asset loan is better
Keeping title may be important if equipment must be modified, moved or sold frequently. A secured loan can be the more practical option in that case. Conversely, a proposed lease deserves attention when its payment profile, asset coverage or terms address a specific business constraint. Neither structure wins from its name alone.
Illustrative example, not a client result
The decision in practice
A manufacturer wants liquidity from a production line it plans to operate for several more years. We would compare net sale proceeds and all lease payments with an equipment loan, including the value of retaining ownership at the end. A larger upfront check is not necessarily the lower-cost result.
What to prepare
- Equipment register and maintenance history
- Existing loan payoffs and security documents
- Operating plans, desired liquidity and end-of-term preference
For an initial conversation, a summary is enough. Share private materials only through an agreed channel.
Common questions
Must equipment be newly purchased?
Not necessarily. Age, condition, remaining life and provider appetite matter more than a blanket new-equipment rule.
Will we own the equipment at the end?
That depends on the agreement. Review any purchase option, residual obligation or return requirement before comparing payments.
Sources and further reading
Our decision framework is CFO Signals analysis. External references describe market practices and products, not an endorsement, partnership or available offer. Terms and eligibility require confirmation for your transaction.