While most small business owners and managers are aware of the benefits of leasing new equipment and the best uses for leasing over purchasing, many miss out on the opportunities leases offer for planning the end of a machine’s useful lifespan and preparing for an upgrade. If you have equipment you own outright and you need working capital, you can sell the equipment to a financing company that is then prepared to offer you an equipment leasing agreement that keeps the machine in your shop. The result is a lump sum of capital you can use as needed, as well as a planned sundown date for the machines you’re now leasing. At the end of that period, you can typically choose to renew the lease or to let the equipment be removed.

Using Buyback Leasing To Buy New Equipment

Often, when you want to buy an upgraded machine, it’s to expand your business. That means you typically want to retain its predecessor, at least for a while. Eventually, you’ll need to let it go so you can upgrade again, because you’ll eventually fill your space. Sound like a familiar situation? If so, consider selling the old machine for the money you need to cover your down payment on the new one. You’ll have a known monthly equipment leasing cost for the old machine and a date you can count on for its removal if you’re on track to finance an upgrade.

So what does it take to get approved, in terms of equipment value? The machines you lease through the buyback have to be in good condition, and typically investors want about a quarter of their estimated operating life left at the end of the lease, but some companies specialize in alternative leasing options that go beyond these basics. Check with individual lenders for minimum and maximum buyback lease values, because they do vary.

Buybacks for Working Capital

Many companies also use this equipment leasing option when cash flow gets tight, because the working capital it provides will not add debt to your balance sheet. It does introduce a regular expense to your overhead, so keep that in mind as you strategize what to do with the capital. For companies without invoices or traditional inventory to finance, though, it is a great way to access working capital using the assets you have instead of leaning on high interest credit options. With the right lease agreement, you can even retain the option to buy old machines back after the lease, when your reserve capital has been built up enough to make the purchase easy again.