Equipment Financing Sale Leaseback Solutions 7 Park Avenue Financial

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EQUIPMENT FINANCING CANADA 

Equipment Finance is one of the most popular and widely used financing strategies used by Canadian business owners and financial managers.   It is a unique financing opportunity because it is kind of the opposite of a normal lease financing strategy. Why is that? Normally your firm has the need for equipment and has cash flow and working capital to make the payment.

In a sale and leaseback financing, the opposite is true. You have the equipment, it’s paid for, and the capital is of course tied up in the fixed asset account of your balance sheet. How can you unlock that capital and put it to work to generate sales and profits? The answer is the sale leaseback strategy.

You should consider a sale-leaseback strategy when you have a need to improve your liquidity. What is the sale leaseback – very simply speaking it’s the refinancing of equipment you own under a leasing strategy, so it is not a loan per se.  There is one key accounting issue that we should point out though, and it’s simply that if you refinance that equipment and the financing is more than you are carrying the asset for on your balance sheet (you have depreciated the asset over time) then the excess you receive over book value might be taxed as a profit. The bottom line, talk to your accountant on that point.

Implementing a sale leaseback strategy for your Canadian firm is easy – along with the normal business lease application you will need to generate a bill of sale to the lease company that transfers title back to them and the title will once again revert back to your firm when the lease is repaid.

Depending on the size of your transaction, or the number of assets involved it might be advisable to get an appraisal, in fact, one might even be a requirement, as opposed to a ‘nice to have'. We point out to clients that often work in your favour as it gives you a sense of what the true value is of the equipment and it might increase the amount you receive under the sale and leaseback strategy.

Another benefit of a sale leaseback strategy is that it potentially will make your balance sheet look better. In many cases your current ratio improves because you use the funds to reduce payables. You are more liquid and can use funds for such things as buying more inventories and taking discounts for prompt payment

In summary, a sale leaseback strategy is a great way to improve working capital and your balance sheet. Speak to a trusted and credible leasing advisor and determine if you can take advantage of those benefits 

Stan Prokop