Short answer
Yes. In a sale and leaseback a lessor buys equipment you already own at an appraised value, pays you the proceeds in cash, and leases the same equipment back to you on a fixed schedule. The equipment never moves. Because the amount follows appraised value rather than revenue, it is often the largest source of unrestricted cash available to an asset heavy business.
This page is general information about how lenders in the Canadian market usually behave. The figures are norms observed in practice rather than published rates, and no lender is bound by any of them. Your own file decides the answer.
How it works
- You list the equipment: description, year, serial number, hours or mileage, condition, and what is registered against it.
- A lessor or an independent appraiser sets a value.
- The lessor purchases the equipment and pays you.
- You lease it back over a fixed term, usually three to six years, and typically buy it back for a nominal amount at the end.
What it is worth
The advance follows appraised value, less anything already registered. Age, brand, maintenance record and the depth of the resale market all move it. Standard, well maintained assets from recognised manufacturers appraise best. Custom built or single purpose equipment appraises poorly, because the lessor has to be able to picture the recovery.
What it costs
More than a bank term loan and less than an unsecured advance. Ask for the total cost over the term as a dollar figure rather than a rate, because lease documentation quotes payments and the two are easy to confuse.
The tax consequence
This is a sale, and the tax treatment follows a sale. Equipment that has been depreciated for several years usually has an undepreciated capital cost well below what it will appraise at, and selling above that figure claws back the capital cost allowance already claimed. The recaptured amount is fully taxable business income in the year of the sale, which is the same year the cash arrives.
It is not a reason to avoid the structure. The lease payments are deductible against it, and on a genuine funding need the arithmetic usually still works. It is a reason to run the number with your accountant before signing rather than after, because on a fleet with a low remaining cost base the bill can be a meaningful share of the proceeds and it lands whether or not the money has been spent.
When it fits
- An asset heavy business at a revenue level where cash flow lending caps out too low.
- A shortfall that is genuinely timing, where the equipment keeps earning while the lease is serviced.
- Funding an acquisition or a contract mobilisation without diluting ownership.
- Refinancing several expensive facilities using an asset that is sitting idle on the balance sheet.
When it does not
- When the business is losing money. You will have converted an owned asset into a monthly obligation and changed nothing else.
- When the equipment is near the end of its working life. The lease will outlast it.
- When the fleet is already financed. There is nothing to advance against.
- When the plan is to sell the business shortly. A lease on the core assets complicates the sale.
Documents
- A full equipment schedule with serial numbers and current hours or mileage.
- Proof of ownership: original invoices or bills of sale.
- A PPSA search confirming what is registered.
- Two years of financial statements and current interim results.
- Six months of business bank statements.
- Photographs, and an appraisal where the lessor asks for one.
Questions
- Do I lose the equipment?
- Legal title transfers to the lessor for the term. You keep possession and use throughout, and most structures end with a nominal buyback.
- Can I do this on partly financed equipment?
- Sometimes. The existing lender has to be paid out or postponed from the proceeds, which reduces the net cash to you.
- How long does it take?
- Often one to three weeks. The appraisal and the PPSA search set the pace.
Where this shows up in practice
- Equipment and vehicle financingFinance sized against the asset itself, for machinery, fleet and production systems, including sale and leaseback on equipment you already own.
- Refinancing and debt restructuringConsolidating expensive or badly structured facilities into a schedule the business can actually carry.