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If your business owns expensive equipment outright and you need cash, an equipment sale-leaseback is one of the most underused tools in the small business funding stack. You sell the asset to a finance company, sign a lease to keep using it, and the wire shows up before the dust settles on the appraisal. The truck keeps hauling, the excavator keeps digging, the press keeps running.
The catch is that this is not the right product for every business. It is a precise tool for a specific situation: free-and-clear equipment, healthy residual value, and a real plan for what the money does next. This guide walks through how the mechanics work, who wins with this structure, and where it quietly fails.
How an equipment sale-leaseback actually works
The mechanics are simpler than the name suggests. A lender appraises your equipment, typically against orderly liquidation value (OLV), which is what the asset would fetch in a 60-90 day private sale. The lender then pays you roughly 70-90% of that OLV in cash. In exchange, the title transfers to the lender and you sign a lease agreement, usually 36-60 months, that lets you keep operating the equipment exactly as before. At the end of the lease you have three standard exit options: a $1 buyout that returns title to you, a fair market value (FMV) buyout at then-current pricing, or a clean return.
Run the math on a real example. You own a $400K excavator free and clear, three years into its useful life. An appraiser puts OLV at $300K. The lender advances 80%, so $240K wires to your account today. You sign a 60-month leaseback at $4,500 per month, which totals $270K over the term. Add a $1 buyout at the end and your net cost is roughly $30K plus the time value of money on the advance. That implied rate sits in the 10-15% range depending on credit, deal size, and equipment category. The cash is available immediately and the equipment never stops working.
Compare that to the alternatives. An MCA on the same business might raise $150K at a 1.45 factor with daily ACH pulls, an effective rate north of 60%. A traditional term loan might get you to $200K unsecured at 14-22% over 24-36 months. A sale-leaseback uses the asset you already own as the collateral, which is why the pricing is dramatically more humane for businesses that have iron on the books.
Which businesses actually win with sale-leaseback
The structure rewards asset-heavy industries with predictable equipment lifecycles. Construction is the cleanest fit. A general contractor with excavators, dozers, loaders, and skid steers paid off from prior projects can tap that equity to fund the bond, mobilization, and payroll on the next job without taking on new equipment debt. We see this constantly in construction company financing conversations where the operator is cash-poor and equipment-rich at the same time.
Trucking and transportation work the same way. Owner-operators and small fleets with paid-off tractors, trailers, or reefers can refinance high-cost MCA debt or fund a growth push without selling units. Our trucking and transportation loans guide covers the broader landscape, but sale-leaseback is the move when the rolling stock is the only real asset on the balance sheet.
Manufacturing rounds out the top three. CNC machines, presses, injection molders, and industrial finishing lines hold value well and lenders know how to appraise them. Agricultural operations with $150K+ tractors and combines fit the same profile, though seasonality complicates the lease structure and most lenders want to see at least two strong harvest years on the books. Commercial printing presses, packaging equipment, and food processing lines round out the list of categories that move easily through underwriting.
The winning use cases share a pattern. The business is sitting on equipment that is not generating revenue proportional to its balance sheet value. Maybe the asset is idle for half the year. Maybe the operator bought it at peak and the work has shifted. Maybe an MCA from 18 months ago is choking weekly cash flow and the equipment equity is the cheapest way out. In each case the sale-leaseback unlocks dead capital without forcing a sale. If your situation involves broader asset use beyond a single piece of equipment, asset-based lending can be a parallel conversation worth having.
The tax flip and where deals quietly fail
Here is the part that catches owners off-guard. Owned equipment depreciates on your books, which means you have been claiming a depreciation expense every year that reduces taxable income. The moment you sell the asset to the lender, that depreciation schedule stops. The lease payments become a fully deductible operating expense going forward, which is great, but the back-end math is more complicated than it looks.
If you took Section 179 expensing or bonus depreciation in earlier years (which most owners did, especially on equipment bought between 2017 and 2022 when bonus was at 100%), the sale can trigger depreciation recapture. That recapture is taxed as ordinary income, not capital gains, which means a $300K sale could create a six-figure tax bill in the year of the transaction. There are ways to structure around this, including spreading the gain or coordinating with year-end equipment purchases that offset the recapture, but none of it works if you sign first and call your CPA second.
The rule we give every client: get your accountant on a 30-minute call before the appraiser shows up. Walk through the original purchase basis, accumulated depreciation, and any Section 179 or bonus elections. Model the recapture against the cash raise and the implied lease cost. Sometimes the answer is to proceed exactly as planned. Sometimes it is to wait three months for a new equipment purchase that absorbs the recapture. Sometimes it is to use a different product entirely, like a working capital advance or an equipment-secured term loan that does not transfer title. The CPA conversation is twenty minutes that can save you tens of thousands.
The other quiet failure mode is equipment that should not be leased back in the first place. If the asset is near the end of its useful life, has low residual value, or is something the business was already planning to retire, a sale-leaseback locks you into 36-60 months of payments on an asset you do not want to keep. Same problem if the equipment is heavily specialized to one customer or contract that might not renew. The structure assumes the equipment keeps producing revenue through the full lease term. When that assumption breaks, the math gets ugly fast. For a clean comparison against straight equipment financing on new purchases, see equipment financing: lease, buy, or finance.
How TurboFunding Helps
TurboFunding structures equipment sale-leasebacks across construction, trucking, manufacturing, agricultural, and printing operations from $10K to $5M. We advance up to 90% of OLV on clean files and turn most deals in 7-14 business days from application to wire. We accept 550+ FICO, $10K+ in monthly revenue, and 6+ months in business as the underwriting floor. If sale-leaseback is not the right fit, we will say so and route you to equipment financing, a term loan, or a working capital structure that actually solves the cash problem. Our 3-minute application uses a soft credit pull. Find out More.
Frequently Asked Questions
Q. Do I have to give up the equipment during the lease?
A. No. The title transfers to the lender but the equipment stays in your possession and operation for the full lease term. You are responsible for maintenance, insurance, and registration just as if you owned it outright. Nothing about your day-to-day use changes.
Q. What if the equipment is not fully paid off?
A. Sale-leaseback works best on free-and-clear equipment, but partial payoffs are possible. The lender uses the cash advance to pay off your existing loan first, then nets the difference to you. You need real equity in the asset for the math to work, typically at least 40-50% of OLV.
Q. How is orderly liquidation value (OLV) different from market value?
A. OLV is what the equipment would sell for in a controlled 60-90 day private sale, which is roughly 60-75% of retail fair market value. Lenders use OLV because it reflects what they could actually recover if they had to repossess. This is why your $400K excavator might only support a $240K advance even though it could sell retail for more.
Q. Will a sale-leaseback hurt my credit?
A. The application uses a soft pull, so checking your rate has no impact. The lease itself reports as a trade line, typically as a commercial lease rather than installment debt, which is treated more favorably by most lenders looking at your file later. It is materially better for credit than stacking MCAs.
Q. Can I do a sale-leaseback to refinance an MCA?
A. Yes, and this is one of the most common use cases we see. If daily ACH pulls from an MCA are strangling cash flow, converting equipment equity into a 60-month lease at 10-15% implied rate can cut your effective debt service in half. We also handle MCA refinances through asset-based lending when the equipment alone is not enough.
Equipment sale-leaseback is not a product to lead with. It is a product to reach for when the situation calls for it: owned iron, healthy residual value, a real use for the cash, and a CPA who can confirm the tax math. When those conditions line up, it is one of the cleanest ways to convert balance sheet equity into operating cash without selling the business or taking on punishing short-term debt. Apply in 3 minutes with a soft credit pull. Find out More.