Whether you’re looking to expand into a new market, invest in new equipment and technology, or even launch a new product line, odds are your operational cash flow just won’t cover the costs.
Luckily, like many manufacturers, the capital you need is already sitting on the plant floor tied up in your equipment. That’s why equipment financing and asset-based lending solutions have become essential tools for companies looking to unlock working capital.
There are two common asset-based lending solutions Loeb can help you with, Sale-Leasebacks and Equipment Term Loans. Both will provide you with the liquidity you need but are not necessarily equal. Let’s look at these solutions and dig into why we believe in most cases, Equipment Term Loans are the smarter choice.
What is a Sale-Leaseback?
A Sale-Leaseback is when you sell the equipment you own to a financing company and then lease it back from them for a fixed period of time. This allows you to unlock capital while continuing to use the equipment in your operations.
Some key benefits include:
- Enjoy quick access to working capital
- Maintain operational usage of the equipment
- Strengthen your balance sheet and improve financial ratios
Things to keep in mind:
- You no longer have ownership of the equipment
- You can’t claim the depreciation for tax purposes
- You must return equipment at the end of the lease term or walk away from equipment in the event of a liquidation
- Any equipment modifications or upgrades must be approved by the lender
What is an Equipment Term Loan?
A traditional financing solution, Equipment Term Loans provide a lump sum of money that you pay back (principal plus interest) over a fixed period. In this instance, your equipment serves as collateral, but you retain ownership.
Some key benefits include:
- Receive full funding on day one
- Keep ownership of equipment and preserve future borrowing power
- Maintain depreciation and tax benefits with your equipment still on the balance sheet
- Sell equipment to pay down the loan or add new equipment to the borrowing base
- Plan your budget with predictable monthly payments
- Sell equipment in the event of a liquidation to make whole on the loan from the lender
- Use any excess proceeds to pay other creditors or keep for yourself
Things to keep in mind:
- Debt will appear on your balance sheet
- Loans require disciplined and timely payments regardless of revenue cycles
Sale-Leaseback vs. Equipment Term Loan Summary: Key Differences
| Feature | Sale-Leaseback | Equipment Term Loan |
| Equipment Ownership | ✗ | ✓ |
| Upfront Capital | ✓ | ✓ |
| Equipment Flexibility | Limited | Full control |
| Depreciation Benefits | ✗ | ✓ |
| Future Borrowing Power | ✗ | ✓ |
Final Thoughts
If other financing options aren’t available to you, a Sale-Leaseback may be the right solution. But for most manufacturers who are focused on long-term growth, operational control and more flexibility, an Equipment Term Loan is probably the best option. In addition, Loeb’s Equipment Term Loans are driven by your company’s asset strength, not financial statements, making them a very realistic and accessible financing solution.
If you’re ready to unlock the capital of your equipment, our specialists are happy to help determine if a Term Loan is right for your business.
Contact us at sales@loebequipment.com.
