“We Arrange Ontario Sale And Lease Back Transactions For Small And Medium Sized Businesses”

Ontario sale and lease back transactions can be a good way to free up capital trapped in the equity found in your equipment.

A sale and lease back transaction involves selling equipment assets to an equipment leasing company in exchange for cash.

Similar to a loan, you would then pay monthly on an equipment lease to repay the amount received, and then have the option to purchase the equipment back at the end of the lease term.

There are basically three different scenarios where a sale and lease back can be performed.

The most common situation for an Ontario sale and lease back transaction is when a business makes a cash purchase of equipment and then decides to finance all or part of the purchase price after the asset is required.

For most equipment leasing companies, as long as the purchase was done within the last 6 months, they still consider it a new purchase and will be open to looking at a sale and lease back transaction.

If the transaction took place longer than 6 months ago, then it will be harder to get a sale and lease back transaction completed as this will conflict with the lending/funding requirements of most equipment leasing sources.

The second most common form of sale and lease back is when a company is in financial distress and is trying to generate additional capital to help with business operations.

This type of Ontario sale and lease back transaction is only provided through asset based lenders that are well set up for liquidation in the event that the financial position of the business further deteriorates after a sale and lease back transaction is completed.  The rates for this type of sales and lease back transaction tend to be very high as well.

Ontario Sale And Lease Back Financing To Grow Your Business

The third scenario where an Ontario sale and lease back financing request takes place is when a business is in a financially stable position and needs more capital for growth.

In these situations, there are equipment financing and leasing companies available in both Canada and the U.S. that will fund these types of deals provided that the business has a solid financial base and there is very little chance of default or business failure during the term of the proposed leasing arrangement.

While the rates may be higher and the lending or leasing term shorter than for a new purchase, this can provide the means for more capital to come into the company to take advantage of existing sales opportunities.

“Refinancing Equipment Through An Equipment Leasing Facility Is Common Place In Most Industries”

The process of refinancing existing equipment that has either been paid for in cash, or has had a loan or lease against the equipment which is now paid off, is most typically done through an equipment leasing process known as a sale and lease back.

The other equipment refinancing scenario would be when equipment has a current lien or charge against it and you wish to get a new loan or lease in place to pay out the existing charge, plus potentially provide additional capital, assuming that there is enough equity in the equipment to justify an increased borrowing or leasing amount.

Under this second scenario, a sale and lease back option is still going to be the most common form of equipment refinancing in most situations.

With a sale and lease back transaction, your existing assets you own, or the assets that you are leasing that are owned by another leasing company, are sold to an equipment leasing company that is prepared to finance your used equipment for an agreed up amount, rate, and lending term.

Most equipment financing companies have a standard rule that if you have purchased an piece of equipment for cash or self financed it, you can readily apply and receive an equipment loan or lease up to 6 months after the date of purchase without much issue.

This is because most financing companies consider an asset purchased within six months to be new and apply their financing criteria accordingly.

But once an asset is owned or leased for more than 6 months, additional lender and funding criteria can come into place before you will be able to come an equipment refinancing transaction.

Refinancing Equipment Can Require You To Meet A Higher Lending Standard

If you’d like to get the best available rates, or close to them, from an equipment refinancing transaction, then you’re going to have to prove to the lender through your financial statements and credit profile that purpose of the transaction is to fund growth or restructure the balance sheet in a stable business operation.

If the business is in financial distress, it is unlikely that “A” lenders are going to consider providing an equipment refinancing facility.

In cases where additional cash is required and the business is not financially stable, the borrower or lessee will have to consider “B” or “C” credit options which fall more into equity based lending whereby the lender will assess the market value of the asset based on a forced liquidation appraisal and provide a percentage of that value in the form of a loan or lease.

The rates for equity based or asset based loans or leases of this nature are considerably higher than “A” lender rates and are only provide for one or two year periods, allowing the business time to either improve their financial position so they can qualify for lower rates, or sell the assets off under orderly liquidation in order to preserve their equity.