What Is a Lease Buyback and What Are the Benefits?
Getting the equipment you need for your business is vital. At the same time, today’s digital-focused world means business owners have to budget for additional expenses, such as web development, online marketing, payroll costs and taxes. These are the new normal for running your business. How can you balance equipment payments with these other essentials? One option is to switch to a lease buyback model for equipment leasing.
What Is a Lease Buyback?
There is a minor difference between a lease buyback and a traditional equipment lease. With a normal lease, you’re just starting to make payments on business equipment. With lease buybacks, you already own the equipment but decide to switch to a rental format to obtain needed working capital.
How Does This Type of Equipment Leasing Work?
In simple terms, lease buybacks mean you sell machinery or construction equipment to a leasing company and immediately lease it back. You receive a sizable payment in exchange for this equipment. In return, you start to make monthly payments on it according to the terms of the lease. In a sense, this is basically like exchanging an asset for working capital.
Why Are Lease Buybacks Attractive?
Why would business owners want to lease equipment that they already own free and clear? At first, the answer may seem hard to understand. However, if you look at lease buybacks as a kind of alternative lending option, suddenly everything makes sense.
Normally, companies in need of financing would have to apply for a bank loan. To obtain the best loan terms and interest rates, they have to fulfill several requirements, including an excellent credit score, solid cash flow, possible down payment and an asset as collateral. This isn’t always easy, especially for small businesses.
With a lease buyback, the same company can get a large infusion of capital immediately, almost the same as when applying for a loan. However, there are far fewer requirements for cash flow and credit score, and no down payment needs. Of course, to continue using the equipment, the company needs to sign a lease for it and make monthly payments. Depending on the circumstances, these lease payments can be much less than loan payments.
What Are the Benefits of Equipment Leasing?
Leasing equipment can provide several advantages over traditional loans. For example, the approval process is often much faster. In addition, the amount you pay every month is fixed rather than variable, making expenses easier to manage. You save money on repairs and maintenance expenses, and it’s easier to upgrade in the future if you need to. For many companies, lease buybacks simply make great business sense.