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When your company has outstanding debts or needs to raise funds to continue growing, why not make your existing equipment work harder for you. Sale-back finance, also commonly known as sale and hireback, allows SMEs to use their capital equipment to improve their working capital and access cash, whilst maintaining full use of the equipment.
What is sale-back finance?
In a sale-back finance arrangement, you sell unencumbered assets to a financier and finance them back. You can choose to lease back the asset on a Rental Agreement or finance it on a Secured Loan. The difference between the two options relate to ownership, whereby on a Rental Agreement, the financier owns the asset and your repayments are made out of your operating expenses, whilst on a Secured Loan, the asset appears on your balance sheet (you own it) and the financier takes security over the asset for the term of the loan.
Both options give you full use of the equipment whilst you make regular monthly repayments over a period of years that suit your company’s cashflow requirements.
What type of assets are suitable for sale-back?
Sale-back finance typically works well with high value, slow depreciating equipment like heavy machinery, forklifts, hoists, cleaning machines, trucks and trailers, packing machines or other specialist equipment with a strong resale market. Multiple assets can be ‘bundled’ into a single finance contract.
How can sale-back finance be used?
Sale-back can assist businesses to raise capital for many purposes.
- Repaying debts
If a business is suffering from creditor pressure, sale-back may be a simple and fast solution to raise funds and inject cash into the business.
One creditor which may be applying pressure is the Australian Taxation Office (ATO), which was owed $19.2billion dollars at the end of last financial year. To recuperate some of these debts, the ATO has been given unprecedented powers to disclose a business’s tax debt details to Credit Reporting Bureaus, where the business has a tax debt of more than $10,000 that is at least 90 days old and where the business has not engaged with the ATO to manage the debt effectively.
The ATO will be able to use this new measure from 1 July 2017, so now may be a good time to investigate options for raising capital to repay the debt, before it becomes a problem.
- Replacing existing finance facilities
Whether it is to obtain a better term or rates, or end a current contract with a lender, refinancing existing equipment can be done using a sale-back finance facility.
- Purchasing new property or land
Sale-back can be used to raise capital for a deposit, or to reduce the amount borrowed.
- Business growth and/or expansion plans
Whether looking to invest in Research and Development, marketing and promotion campaigns, launch a new product or enter a new market, raising capital through sale-back of existing assets can be a fast and effective way of generating capital.
For example, Classic Funding Group recently worked with a large-scale civil contracting company that needed to raise half a million dollars to pay for development costs for a new project. The customer “sold” four of their dump trucks and one bulldozer back to Classic, and financed them on a secured loan for five years. This freed up hundreds of thousands of dollars which could be put towards the development costs, allowing the company to progress with their expansion plans.
Many businesses have assets that are not realising their full financial potential. A sale-back facility can boost cashflow and greatly increase your working capital in a matter of days. It’s a way to make the most of everything your company owns, and spur progress or growth whilst retaining full use of your crucial assets.
Brought to you by David Wright, Classic Funding Group
