What is a Lease Buyback?
Everything You Need to Know!
As the business landscape evolves, there is a proportionately evolving need for smart business solutions that offer answers to new, unprecedented questions. One such solution is known as a Lease Buyback. Lease Buybacks allow businesses to tap into capital by leveraging the assets they already own. While the general concept is applied broadly in the finance space, the “nuts and bolts” of lease buyback make it relatively unique. If you are unsure how you can leverage this solution, Kevin Fagundes, Chief Financial Officer at Express Business Funding breaks down the service; analyzing how it works, the service’s benefits, and how you can make use of it.
What is a Lease Buyback?
Lease Buyback, at its core, is a financial arrangement where a business that owns unencumbered equipment (“unencumbered” refers to an asset or property that is free and clear of any encumbrances, such as creditor claims or liens – Investopedia) can leverage its assets to raise capital. In simpler terms, it involves selling owned equipment to a lessor and then leasing it back, thereby freeing up capital tied to the equipment.
“Lease Buybacks allow businesses to tap into liquidity, for use across any business function, whilst retaining use of the assets they leverage. This strategic move provides more upsides than initially meets the eye – that is the immediate access to much-needed capital,” says Fagundes.
The Benefits of Lease Buyback:
- Capital Injection for Growth: By opting for Lease Buyback, businesses can infuse cash into their operations, providing them with the much-needed financial flexibility to pursue growth opportunities or address immediate financial challenges.
- Reduced Expenses and Improved Cash Flow: Lease Buyback can result in lower operational costs compared to traditional financing methods. The reduction in ownership-related expenses and maintenance costs can contribute to improved cash flow, allowing businesses to allocate resources more efficiently.
- Retaining use of Unencumbered Equipment: The term “Unencumbered Equipment” is crucial in Lease Buyback. Businesses retain the use of their equipment while unlocking the equipment’s equity, ensuring that essential assets remain in operation to support daily activities.
- Tax benefits: Lease Buyback presents businesses with potential tax advantages. The lease payments are typically considered operating expenses, allowing for a more straightforward and immediate write-off compared to depreciation of purchased assets. If you have access to a tax consultant or someone with experience available to you, speak with them about the benefits of operating expenses. There are many!
- Businesses with poor/ no credit are applicable: While creditworthiness is a factor that many lenders/ lending services consider/ factor into the loan process, Lease Buyback considers multiple factors, and secures the initial loan against the equipment. This means that businesses with a poor or limited credit history can make use of the service without concern for hindrance from their credit availability.
- Unlocks opportunity: Many businesses leverage this service to invest in new assets. By doing so, the business can increase business output, while maintaining low costs. Businesses are not exclusively limited to new assets though! The service can be used to invest in new business opportunities, take on larger-than-average projects, or conduct increased marketing to help expansion efforts. The options are limitless!
- Mitigating Risks Through Predictable Payments: Predictable lease payments in Lease Buyback arrangements provide businesses with greater financial predictability. This stability can be instrumental in mitigating risks associated with volatile market conditions, ensuring businesses can budget effectively.
“Lease Buybacks are great financial solutions that mitigate much of the risk that accompanies standard loans while increasing the benefit that they offer. Both businesses and lenders benefit greatly from the transaction. If you are looking for new ways to unlock growth, Lease Buybacks should be a top contender.” says Fagundes.
Which Businesses Can Leverage Lease Buyback?
Each business is unique and in a unique situation. That said, Lease Buyback can service a myriad of needs, and its applications are practically limitless – this means that many businesses can benefit from the service.
To start, if your business has a poor or limited credit history, you will very likely benefit from Equipment Leasing. This is because it is a safe option for lenders, meaning that even when traditional finance avenues are not accessible to you, you can leverage the capital made available to you by Equipment Leasing.
Another business type that may benefit from the service is businesses that are established, own assets, and are looking for a capital injection without taking on conventional credit. This is particularly true for businesses that possess older assets, such as aging machines and want to mitigate the risk of asset failure whilst leveraging its full value.
Finally, businesses that have reached their credit limit with their traditional lender, but who need additional working capital, can benefit from Equipment Leasing. By leveraging this facility, you’re essentially tapping into your own business, as opposed to capital provided by lenders.
Of course, these are just a few examples of the various kinds of businesses that can benefit from Equipment Leasing. If you are unsure whether it is the right fit for you, we recommend that you get in touch with a financial expert for advice. You are welcome to get in touch with us, should you need assistance!
In the ever-evolving world of business finance, adopting innovative strategies is key to staying ahead. Lease Buyback emerges as a compelling option for businesses looking to unlock the financial potential of their unencumbered equipment. By leveraging this approach, businesses can inject capital, reduce expenses, and navigate the financial landscape with greater flexibility.
As finance experts, it is crucial to guide businesses towards solutions that align with their goals and contribute to sustained growth, which is why our team at EBF is always available to assist you in any way that you may need, including advice on various finance solutions. Get in touch with our team here if you would like to receive advice from our team of experts!