Sale Leaseback Explained: Free Up Capital Without Losing Equipment
Quick answer: A sale leaseback converts equipment you already own into working capital. A financing company buys the equipment from you at an appraised value, wires you the cash, and leases the equipment back to you on fixed payments. Nothing moves; your crews or clinicians keep using it the next morning. Canadian lenders typically advance 50 to 80 percent of appraised value, with funding possible inside one to two weeks. It is one of the fastest legitimate ways for an equipment-rich business to raise six figures without diluting ownership or touching real estate.
How the transaction works, step by step
- You identify owned, lien-free (or nearly paid-out) equipment. Construction iron, trucks and trailers, manufacturing machinery, medical and dental technology, agricultural equipment, restaurant and packaging lines all qualify with varying appetite.
- The lender appraises it. Desktop appraisals (serial numbers, photos, maintenance records) handle smaller transactions; certified appraisers inspect larger ones. Lenders work from orderly-liquidation or forced-liquidation value, not retail replacement cost, which is why advances land at 50 to 80 percent of what the asset feels like it is worth.
- Sale and leaseback close simultaneously. You receive the purchase price; a lease (or equipment finance agreement) begins the same day, typically 24 to 60 months, with a buyout returning title at end of term.
- Existing liens get paid out first. If the equipment secures a remaining balance, the lender discharges it from proceeds and you receive the difference.
When a sale leaseback is the right tool
Funding growth you can quantify. Mobilizing a new contract, buying out a partner, funding an acquisition, opening a second location. The capital has a defined return that exceeds the financing cost.
Bridging timing gaps. A contractor holding $600,000 of receivables on 60-to-90-day terms with payroll due weekly has an asset-rich, cash-poor balance sheet. Leasebacks are purpose-built for that shape of problem.
Cleaning up expensive obligations. Replacing merchant cash advances, CRA arrears with penalties accruing, or maxed operating lines with a fixed-payment obligation at a lower effective cost.
When banks say no but the balance sheet says yes. Leaseback underwriting is asset-first. Businesses with bruised credit, a bad year, or a turnaround story can access capital on the strength of their iron when covenant-driven bank credit is unavailable.
When it is the wrong tool
Do not use a leaseback to fund ongoing operating losses with no turnaround plan. You will convert an unencumbered asset into a fixed obligation, and when the cash is gone the loss remains, now with a payment attached. Lenders decline these for the same reason you should.
What lenders evaluate
| Factor | What strengthens your file | |---|---| | Asset marketability | Common makes/models with liquid resale markets (major-brand excavators, trucks, CNC, imaging) | | Age and condition | Under 10 to 12 years for most categories; complete maintenance records | | Title | Clean ownership, no undisclosed liens; be ready with bills of sale and payout letters | | Business story | A clear use of proceeds with a return; lenders fund plans, not holes | | Cash flow | Ability to service the new payment from operations |
Preparing your application
Assemble before you apply: equipment list with serial numbers, year, hours/usage; photos; proof of ownership; any lien payout statements; recent bank statements; and a one-paragraph use-of-proceeds. Prepared files fund in days; unprepared ones stall for weeks on title questions.
Costs and tax notes
Pricing sits above prime bank lending and below merchant-advance territory, scaled to credit and asset quality. On tax: the sale can trigger recapture of previously claimed CCA if proceeds exceed the undepreciated capital cost, and the subsequent lease payments are generally deductible. The net effect varies by file; involve your accountant before closing, and see the broader tax treatment guide.
FAQ
Does the equipment leave my premises? No. Possession and use never change; only registered ownership does, temporarily, until the end-of-term buyout.
How fast can a sale leaseback fund? Straightforward files with clean title fund in 5 to 10 business days; complex multi-asset transactions take longer.
Can I do a leaseback on financed equipment? Yes, if there is enough equity. The lender pays out the existing balance and advances against the remaining value.
What happens at the end of the lease? You exercise the buyout (often nominal or pre-agreed) and title returns to you. Structure this explicitly at signing.
Will this hurt my ability to borrow elsewhere? The lender registers security against the equipment, which other lenders will see. It is ordinary-course financing, not a distress signal, but disclose it when negotiating other facilities.
Key takeaways
A sale leaseback turns idle equity in equipment you already own into working capital in days, without dilution and without the equipment moving. Advance rates run 50 to 80 percent of appraised value. Use it to fund returns, bridges, and cleanups; never to fund unaddressed losses. Preparation of title documents is the difference between funding in a week and stalling for a month.
Own equipment and need capital? The Capital House arranges sale leasebacks across Canada on construction, transportation, manufacturing, and medical assets. Request an appraisal.
Related resources: Understanding Equipment Lease Structures | Financing Used Equipment | Equipment Financing and Tax Savings