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Improving Liquidity Through Equipment Sale and Leaseback

Improving Liquidity Through Equipment Sale and Leaseback

6/29/2020


As organizations re-evaluate their budgets, accounting and finance professionals begin to analyze their company's current financial position. In a turbulent economic environment, a company’s cash position is often an important financial consideration. By demonstrating a strong cash position, organizations can maintain debt ratings, avoid bank covenant violations, and improve liquidity ratios.

Executing a sale and leaseback transaction on equipment acquisitions is often considered.


What is a sale and leaseback?

In an equipment sale and leaseback, the lessor reimburses the lessee for equipment that was purchased during the past 6-12 months. Items typically included in a sale and leaseback are computer equipment, telephone systems, networking infrastructure, printers, software, and office furniture.

Once the sale and leaseback is finalized, the lessee will receive 100% reimbursement of the acquisition cost of the equipment included in the lease. When this occurs, ownership of the equipment is transferred to the lessor and lease payments begin.
 

What is needed to finalize a sale and leaseback?

The financial disclosure requirements for a sale and leaseback are generally the same as a traditional lease transaction. The lessor will require three years of audited financial statements, interim financial statements, and bank reference information. The lessor will also require copies of the vendor invoices for the equipment and cleared check copies as proof of payment. Equipment inspections may also be required.


Ensuring security interest

The lessor will verify that the equipment is not encumbered by the lessee’s existing credit provider(s). If a lien has been filed on the equipment being transferred, a lien release may be needed. Most leasing companies will work with the lessee’s credit providers on obtaining the releases without any additional administrative burden on the lessee.
 

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