What Is a Sale-Leaseback?
A sale-leaseback is a transaction where you sell equipment you already own to a financing company and immediately lease it back. You get a lump sum of cash based on the equipment's current value, and you continue using the equipment as if nothing changed, except now you're making lease payments instead of owning it outright. At the end of the lease, you typically have the option to repurchase the equipment for a nominal fee ($1 buyout) or fair market value.
How the Valuation Works
The financing company appraises your equipment based on age, condition, hours/mileage, market demand, and original purchase price. You can typically expect 50-80% of current fair market value as the lump sum. For example, a 2-year-old Peterbilt 579 purchased for $180,000 with 200,000 miles might appraise at $120,000, and you'd receive $72,000-$96,000 through a sale-leaseback. The lease term is usually 2-5 years with monthly payments.
Real-World Example
A fleet owner has 5 trucks worth a combined $500,000 that are fully paid off. Business is growing but they need $300,000 for a new contract that requires additional trailers and drivers. Through a sale-leaseback, they receive $375,000 (75% of value) and lease the trucks back at $7,200/month for 48 months ($1 buyout). They use the capital to buy trailers and hire drivers, generating $40,000/month in new revenue. The lease payment is easily covered, and they'll own the trucks again in 4 years.
Sale-Leaseback vs. Equipment Refinancing
Both free up cash from existing equipment, but they work differently. Equipment refinancing is a loan against your equipment, you retain ownership and make loan payments. A sale-leaseback transfers ownership to the leasing company. Refinancing typically offers lower rates (since you're taking a loan, not selling), but sale-leasebacks can sometimes provide more cash because the "sale" component allows higher advance rates. Tax treatment also differs: refinancing interest is deductible, while lease payments may be fully deductible as operating expenses.