In today’s tight economy, businesses are struggling to preserve working capital.  There are many possible strategies to employ, such as equipment financing including  equipment leasing or equipment sale and leaseback.  What are the advantages to this type of solution to the cash flow dilemma?

The reality is that if you structure this type of financing properly it’s the ultimate business financial solution to a temporary business challenge.  It allows you to obtain additional cash flow and working capital while not giving up the right to the ownership of business assets.

In times when the economy in tough shape (as it has been for the last few years) the sale and leasing back of business assets becomes more popular. The strategy is often a positive and good decision, because you are freeing up cash that is sitting in fixed assets that are not utilizing their maximum earning power for your business.

Also, your balance sheet improves at the same time because your overall debt to tangible net worth gets better when utilizing business leaseback financing.  Additionally, your write off (depreciation) and financing costs are simultaneously lowered as well.

This method of business re-financing can be an alternative and creative strategy. What your firm does with that additional capital is of course your decision – it can be used for general working capital purposes, a down payment on new and required assets, or to retire additional debt or loans that you might be carrying on your balance sheet. If you can use the new freed up capital to increase revenues and profits that is simply an additional benefit.

Businesses that decide to explore this route are wise to engage an outside, objective third party source to help avoid the potential pitfalls of this type of financing.  The two biggest things to watch out for are maximizing the valuation of your assets and interest rates.

With business equipment leasing & financing, a lender will deploy capital on an orderly liquidation value (OLV) or a forced liquidation value (FLV).  So, the higher your equipment is valued, the bigger the loan your business will receive.  Third party firms, such as Business Capital, will bring in a reputable, qualified appraiser that is experienced in your industry so you are ensured of getting the maximum value for your assets.  With a large network of lenders – as well as appraisers – at its disposal, a third party firm can also shop the best rates and present the best option for your business.  This is important, as rates for this type of financing can vary widely.

Chuck Doyle, Managing Director at Business Capital sums up the value of using a third party for financing needs. “We create market competition for our clients by requesting financing proposals from our trusted lending sources. Our RFP process ensures our clients are receiving the best terms and conditions the market has to offer. At a critical financial juncture, why would you want to hitch your wagon to one horse?”

If your firm has interim cash flow or balance sheet enhancement needs, investigate the benefits and the alternatives equipment leasing or equipment sale and leaseback financing. Speak to a trusted, credible and experienced business financing firm that can assist you in structuring a transaction that optimizes benefits and increases cash flow.