Most companies, especially construction companies, need equipment to succeed. They rely on equipment like hydraulic power tools, excavators, bulldozers, and forklifts for their daily operations. While most companies rely on them for their functionality, they can be among a company’s funding sources through lease buyback.

How Does an Equipment Lease Buyback Work?

An equipment lease buyback is when a business sells the ownership of certain equipment to a leasing organization who in turn leases the same equipment to its original owner. Take a construction company, for instance. They will sell an excavator to a leasing company for $50,000, and then the leasing company lets the construction company keep using the excavator for about $500 per month. For both parties, it is a win-win situation. The leasing company enjoys the benefits of owning equipment and getting long-term payments, while the construction company enjoys the benefits of an instant influx of cash from the leasing company.

Advantages of Equipment Lease Buybacks

One benefit of equipment lease buybacks is that it is cost saving. Construction equipment can be costly. Something like a bulldozer ranges from $30,000 to $200,000. No matter how established a company is, that is a significant monetary investment that is likely to interfere with cash flow. With equipment lease buyback, the company can preserve its cash flow not to exhaust all their cash on equipment.

Another advantage is that the leasing company undertakes the responsibility of repairs and maintenance. Should the equipment break down, the cost of repair is covered by the leasing company.

Disadvantages of Equipment Lease Buybacks

One major disadvantage of equipment lease buybacks is that you no longer own equipment as you have sold it to a leasing company. You also cannot sell it once you no longer need it.

The length of leasing the equipment might be longer than what you need. For instance, you may need an excavator for around eight months only, but the leasing company asks you to sign a lease for 12 months.

However, when you consider all the options, you may see that an equipment lease buyback is a viable option when you are looking for funding for your business. Also, if your company often uses high-end machinery and equipment, you do not have much to lose. Reach out to KPI if you are looking for financing to keep your business running.