Equipment refinancing and sale-leasebacks: unlocking the value in equipment you own

If your business owns trucks, machinery or shop equipment that's paid off or close to it, you may be sitting on one of the cheapest sources of capital you have. Equipment refinancing lets you borrow against that equity instead of taking on unsecured, short-term debt.

Two ways to refinance equipment

• Equipment refinance loan. You keep ownership. The lender advances funds against the equipment's value and registers its security interest, just as it would on a new purchase.
• Sale-leaseback. You sell the equipment to a leasing company and lease it back. You keep using it every day, you receive the sale proceeds as cash, and at the end of the lease you can usually buy it back.

Why businesses do it

• Fund growth without a new unsecured loan: a new contract, a second crew, more inventory.
• Replace expensive debt. Paying off one or more cash advances with a longer-term, asset-backed payment can cut your weekly outflow significantly. Here's how to work out what your advances really cost.
• Lower a payment by re-amortizing equipment you financed over a short term.
• Recover cash you spent buying equipment outright.

How lenders value your equipment

The amount you can raise depends on what the equipment would sell for, not what you paid. Lenders look at make, model, age, hours or mileage, condition, and how active the resale market is. Trucks, trailers, yellow iron and common production machinery are the easiest to refinance. Highly customized or specialized equipment is harder. Your equity is roughly the appraised value minus anything still owing.

What you'll need

• A list of the equipment with make, model, year and serial number or VIN.
• Proof of ownership, such as original bills of sale or registrations.
• Payout statements for anything still financed.
• Photos, and in some cases an inspection or appraisal.
• Your last few months of business bank statements. Here's the full document checklist.

The lender will also run a search of the provincial personal property registry to confirm no one else has a claim on the equipment.

Things to weigh first

• Tax. Selling equipment in a sale-leaseback can trigger tax consequences, such as recapture of capital cost allowance. Talk to your accountant before you sign.
• Ownership. In a sale-leaseback, the leasing company owns the equipment until you buy it back. Read the end-of-lease terms carefully.
• Purpose. Refinancing to fund growth or replace expensive debt makes sense. Refinancing to cover ongoing losses only delays the problem.

Who it suits

Established trucking companies, contractors, manufacturers and auto shops with valuable, well-maintained equipment and a clear use for the cash. Your advisor can tell you quickly what your equipment is likely to support and compare a refinance loan with a sale-leaseback. Learn more about equipment financing.