7 Myths About Sale Leaseback Financing
When companies need cash to fund growth, pay off debt or cover emergency expenses, they can sell equipment assets in a sale leaseback. It’s a creative financing solution that turns idle assets into working capital without disrupting operations. In essence, the equipment simply transfers ownership to a financing company but remains on-site serving business as usual. It’s a popular strategy for building, transportation and other industries with expensive or specialized equipment that may be difficult to sell outright.
Equipment Sale Leaseback Financing can be an attractive alternative to taking on new debt or equity funding, but too often managers get confused by the jargon and misunderstand the potential benefits. Understanding these seven myths can help decision makers better evaluate if this is an option that makes sense for their situation.
Myth 1: Sale Leasebacks Aren’t Tax Deductible
Contrary to popular belief, sale leasebacks are not taxable as debt. In fact, they are considered to be True or Tax Leases, which are a form of fixed asset finance that is similar to an operating lease. In the case of a sale and leaseback, your company is selling equipment to a buyer who immediately enters into a lease agreement with you to continue using the equipment for a specific term (typically two to seven years). Monthly rental payments are based on the fair market value of the equipment and are 100% tax deductible as an interest expense. As the equipment reaches the end of its useful life, you have options to buy it back, renew the leasing or replace it with newer equipment.