Equipment Financing vs Sale-Leaseback
Two ways to use equipment as capital. One finances a new purchase. The other unlocks the equity in equipment you already own.
Equipment financing and a sale-leaseback both use equipment as the collateral story, but they solve opposite problems. Equipment financing funds a new purchase — the lender advances against the cost of the asset you are about to acquire, you pay it back over 3–7 years, and at the end of the term you own the equipment free and clear. The use of funds is forward-looking: you are buying something to produce revenue. A sale-leaseback is the reverse mechanic on equipment you already own. The lender buys the equipment from you (at a percentage of its fair-market or liquidation value), then immediately leases it back to you. You keep using the equipment exactly the same way; what changed is the cash. The equity that was trapped in the asset is now in your operating account, available as working capital, and you have lease payments over the next 3–4 years instead of an owned asset on the balance sheet. The use of funds is the cash you extract: payroll, growth investment, debt consolidation, whatever the operating business needs. The short decision: if the question is "how do I pay for new equipment," it is equipment financing. If the question is "I have free-and-clear equipment but I need cash for the operating business," it is a sale-leaseback. The two products are not substitutes; they are different answers to different questions, even though they share the same collateral type.
Equipment Financing (New Purchase) vs Sale-Leaseback at a glance
| Feature | Equipment Financing (New Purchase) | Sale-Leaseback |
|---|---|---|
| Speed | 1–3 weeks | 2–4 weeks |
| Cost | Prime + 3–10% (single digits to low double digits in 2026) | Prime + 4–10% (priced as a lease, not a loan) |
| Range | $100K – $50MM+ | $100K – $25MM+ |
| Collateral | The financed equipment itself (UCC on the asset) | The leased-back equipment itself |
| Use case | Buying new equipment (or used from a dealer) | Extracting cash from equipment you already own |
| Direction of cash flow | Lender pays the vendor; you make payments to the lender | Lender pays you a lump sum; you make lease payments back |
| Ownership at the end | You own the equipment free and clear | You own it again (typical buyout) or extend the lease |
| Speed to fund | 1–3 weeks (faster for vendor-direct programs) | 2–4 weeks (includes appraisal of the existing asset) |
| Advance / valuation basis | 70%–85% of equipment cost or liquidation value | 50%–70% of fair-market or liquidation value of the owned asset |
| Pricing (as of 2026) | Prime + 3–10%, single digits to low double digits | Prime + 4–10% (priced as a lease, not a loan) |
| Typical term | 36–84 months (most common in the 60–84 month range) | 36–48 months typical |
| Balance-sheet treatment | Asset and matched debt on the balance sheet | Operating lease (off balance sheet) or capital lease, depending on structure |
| Best fit | You are acquiring revenue-producing equipment | You have free-and-clear equipment and need operating cash |
When to pick Equipment Financing (New Purchase)
Financing the acquisition of new machinery, vehicles, or technology. The lender advances against the cost of the asset; you pay it back over 3–7 years.
Pick equipment financing when you are acquiring new equipment that will produce revenue. The math is straightforward: the lender advances 70%–85% of the cost of the asset, you pay roughly 15%–30% down (sometimes nothing, depending on credit and asset class), and the loan amortizes over the useful life of the equipment — most commonly 60–84 months. At the end of the term you own the equipment outright and have built a track record with the equipment lender that makes the next purchase faster. The right comparison to make here is not equipment financing versus a sale-leaseback, but equipment financing versus drawing on your working-capital line to fund the purchase. Equipment financing is almost always cheaper for the same purchase because the lender has a specific asset to collateralize and a longer amortization to spread the payment across. Drawing on a revolver to buy a $400K machine costs you the line's interest rate on the full balance plus the opportunity cost of having the line tied up; financing it directly typically prices three to five points lower and matches the payment to the asset's useful life.
- •You are acquiring new (or used-from-dealer) revenue-producing equipment
- •You want to match the financing term to the useful life of the asset
- •You want to keep your working-capital line free for working-capital uses
- •You can put 0%–30% down depending on credit and asset class
- •You want to own the equipment outright at the end of the term
When to pick Sale-Leaseback
Selling equipment you already own to a lender and leasing it back. Releases the trapped equity in the asset as working capital.
Pick a sale-leaseback when you have meaningful equipment on your balance sheet that is free and clear — meaning no existing UCC, no equipment loan, no lien — and the operating business needs cash. The equipment is doing its job; you are not selling it because you do not need it. You are selling it because the cash value is currently locked inside the asset and you want to deploy that cash for something the operating business needs more: payroll during a growth period, debt consolidation, working capital, a strategic acquisition. The trade-off is that you turn an owned asset into a lease obligation. You still get to use the equipment exactly the same way — most sale-leaseback structures include a buyout option at the end of the lease so you can re-own the equipment — but for the duration of the lease you have a fixed monthly payment that did not exist before. The discipline this requires is matching the use of the freed-up cash to a clear payback. If you sale-leaseback $300K of equipment to fund a six-month inventory build that produces $400K of margin, the math works. If you sale-leaseback $300K to cover general operating losses, you have converted an owned asset into a monthly bill without a corresponding recovery — a sign the business needs a different conversation, not a different product.
- •You have free-and-clear equipment on the balance sheet (no existing lien)
- •The operating business needs working capital and other sources are not available or are more expensive
- •You can name the use of the freed-up cash and its expected payback
- •You are comfortable with a 36–48 month lease obligation on equipment you currently own
- •You want the option to buy the equipment back at end of lease
A worked example
Scenario: A $5MM manufacturer needs to add a $400K CNC machine to take on a new contract. Separately, the business owns $600K (fair-market value) of free-and-clear production equipment installed five years ago.
How the math works out: Equipment financing path (the new CNC): $400K financed at Prime + 5% (assume 13% in 2026) amortized over 60 months, with a 15% down payment. Monthly P&I: roughly $7,750 on the financed $340K. The new asset is on the balance sheet matched against the new debt; the working-capital line is untouched. Sale-leaseback path (the existing equipment): $600K of fair-market value, advance at 60% = $360K of cash released to the operating business. Lease payment at Prime + 6% over 48 months: roughly $9,200 per month. The $360K is now available for whatever the operating business needs — and the equipment continues to operate exactly the same way.
Takeaway: For the new equipment, equipment financing is the right tool — match the financing to the asset, keep the working-capital line free. For the operating-business cash need, the sale-leaseback unlocks $360K that was sitting in the asset, at a monthly cost the operating business can absorb. Done together, this is a classic two-product capital stack: finance the new growth asset, sale-leaseback the existing one to fund the working-capital piece.
How Michael thinks about it
“another one would be a term loan against your free and clear equipment, which is called a sale lease back, where you basically, it's almost like you're selling it back to the lender and then leasing it back from Which is just a fancy way of saying, that's how you're getting cash out of it. It's like, it's like they own it now. Which, you know, and that's how you get the cash out of it, is if you made a sale, but then you're leasing it back until you're making lease payments on it over a three or four year period. But that's a term note.”
— Michael Kodinsky, Founder of Serve Funding · Mike on the Daryl Wakefield call, giving the cleanest plain-English definition of a sale-leaseback — selling the equipment back to the lender and leasing it back to release the cash trapped in the asset.
“you can expect equipment deals, new equipment that you're purchasing, you can expect anywhere from, I mean, obviously you can go shorter term and you'll get a better rate, but your debt service would be a little higher, so you can go as short as, gosh, 24, 36 months if you want, most cases they live somewhere in the 60 to 84 month range, you know, and again, you can get rates in the single digits, up into the very low, very, very low doubles.”
— Michael Kodinsky, Founder of Serve Funding · Mike on the Chuck Wahr call, framing the term and rate ranges for new-equipment financing — single digits to low double digits, 60–84 months most common.
“there's just a range, you can get really fast and flexible capital, but you're going to pay more for it, you're going to have something in the middle, like an inventory or asset-based, and then you can have, obviously, real estate also being an asset-based, but, you know, on the real estate side.”
— Michael Kodinsky, Founder of Serve Funding · Mike on the Lawson Aschenbach call, on the general principle that equipment-collateralized capital sits in the middle of the cost spectrum — cheaper than revenue-based, more expensive than real estate.
Common questions
Can I sale-leaseback equipment that still has a loan on it?
Usually not directly. The sale-leaseback lender needs to take a clean position on the asset, which means existing liens have to be paid off out of the proceeds. If your existing equipment loan is small and the sale-leaseback value is meaningfully larger, the structure can work: the proceeds first pay off the existing loan, the rest comes to the business as working capital. The lender will model this in advance and tell you exactly what the net cash to the business will look like.
What kind of equipment qualifies for either product?
Equipment financing works on almost any titled or serial-numbered business asset — production machinery, vehicles, technology hardware, medical equipment, restaurant equipment, construction equipment. Sale-leaseback is similar but the lender is more selective because they are taking a position on a used asset: they want equipment with a real secondary market, clear maintenance records, and a verifiable fair-market value. Specialty or highly customized equipment sometimes does not work for sale-leaseback even though it would work for new-purchase financing.
How is the value of my existing equipment determined for a sale-leaseback?
The lender will order an appraisal — typically a desktop appraisal for assets under $500K and a physical inspection for larger deals. The appraiser produces a fair-market value (what the equipment would sell for in an orderly sale) and a liquidation value (what it would sell for in a forced sale). The advance is typically 50%–70% of the liquidation value, sometimes higher on assets with strong secondary markets.
Will I lose ownership of my equipment in a sale-leaseback?
Technically yes during the lease — the lender owns the equipment and you lease it back. Practically, you keep using it exactly the same way, you are responsible for maintenance and insurance, and most structures include a buyout option at the end of the lease (often a $1 buyout or fair-market-value buyout, depending on the structure). At the end of the lease you can buy the equipment back and own it outright again.
Is equipment financing the same as leasing?
They are close cousins but not identical. Equipment financing is structured as a loan secured by the equipment — you own the asset, the lender has a UCC on it, you make principal-and-interest payments. A lease is structured as a rental — the lender owns the asset, you make lease payments, and at the end of the lease you either buy it out or return it. The economics are similar; the balance-sheet treatment and tax treatment differ, which is why the right answer often depends on your accountant's view of how the lease versus loan treatment affects your statements.
How fast can a sale-leaseback close?
Typically 2–4 weeks, with the appraisal being the main pacing item. Faster closes are possible on smaller deals with desktop appraisals, slower closes on larger deals or specialty equipment that needs a physical inspection. If the cash need has a deadline, tell the lender at the start so they can sequence the appraisal accordingly.
Can I do both — finance a new piece and sale-leaseback an existing piece?
Yes, and this is a common structure for a growing business. Finance the new growth asset on a 60–84 month equipment loan and sale-leaseback the existing free-and-clear equipment to fund the working-capital piece. Done together, the two products give you the new revenue-producing capacity plus the working capital to support it — without touching the bank line or AR-backed revolver.
