The Ins and Outs of Equipment Lease Buybacks
When your business involves the use of heavy equipment, you likely have a lot of cash invested in working capital. Equipment lease buybacks (or factoring) allow you to free up cash, using your working capital as collateral. When your money isn’t tied up in heavy equipment, your business can make the spending decisions it needs to grow. Take a minute to learn more about factoring and how it could potentially help your company.
What Are Lease Buybacks?
When you purchase heavy equipment, you are making an investment. Like all investments, your machinery has value. Through a lease buyback program, a lender will purchase the value of your equipment and lease it back to you. This provides a cash influx for your business, allowing you to reinvest in new equipment, inventory, property and more.
Construction companies use equipment lease buybacks frequently to upgrade their current working capital. Instead of cutting further into expenses, they use the full value of the old equipment to purchase the new.
Benefits of Buybacks
If you’re unsure whether factoring is appropriate for your situation, take a look at some of the following advantages it can have.
Frees Up Cash From Working Capital
The most apparent benefit of lease buybacks is cash on hand. Typically, equipment would be considered a fixed asset, adding nothing to your current ratio. If short term debts or investment opportunities require liquid assets, then you can use equipment lease buybacks to get a cash infusion.
Opportunity for Equipment Upgrade
At the end of the lease term, many lenders will offer the chance to continue the lease agreement with new, upgraded equipment. Instead of purchasing replacements for obsolete equipment, you can continue to lease and save your cash for other investments.
Increase Business Write-Offs
As a fixed asset, your equipment offers no real tax advantages other than depreciation. However, if leased, you can write off your payments and interest as an expense, lowering your tax debt. In this way, lease buybacks are especially helpful for smaller businesses.
Offset Repair Costs
In a lease buyback situation, because you no longer own the equipment, you’re no longer responsible for upkeep costs. Most lease agreements factor these costs into the monthly payments, freeing you of the burden of unexpected repairs.
Speak with a financial business consultant to learn if equipment lease buybacks are right for your business. Whether you need to invest or manage your short term debt, factoring can be a viable solution for you.