Leaseback – What percent against computer equipment?

When a business is considering a leaseback, what percent of the value of the computer equipment will the loan typically be for?

In a leaseback transaction, the owner of equipment sells the asset for cash and leases it back, obtaining working capital. When the transaction involves computer equipment, the percentage obtained against the asset will typically be lower than for other equipment. The percentage will vary depending upon other factors such as time in business, business credit, personal credit and the amount of the request.

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The percentage loaned against the asset in a leaseback will range from 20% to 80%. Computer equipment depreciates in value very quickly. After only 1 year, the equipment may often be worth only 75% of the original value, sometimes less. This is a significant drop.

While the technology is almost always important in a leaseback, the technology needs of other types of equipment will usually not be as great. This includes restaurant equipment, construction equipment, machinery, and vehicles.

The quick drop in value has consequences that do not happen as severely with other types of assets in a leaseback. Because the value drops so much so quickly, if any party is forced to sell the equipment after 1 or 2 years, the market for selling this equipment becomes difficult because the technology updates so rapidly.

Since technology requirements are such a significant part of the reason updated computer equipment is purchased, buyers of computer equipment, especially businesses, may not be motivated by the price difference. A higher priority for businesses will often be the technology that allows their business to function as efficiently as possible. Businesses need to offer their customers the best service. Businesses also need to be up to date against their competition and preferably, have an advantage over their competition.

Due to this, in a leaseback loan transaction, they will likely be offered a low percentage against this type of equipment due to the difficulty and lower return in the event the equipment has to be sold.

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computer equipment

A computer equipment loan, is a way for businesses to get working assets by using their computer equipment as security.

Computer equipment is the type of collateral which depreciates the fastest.   Whether the collateral will have much value, or any, will depend primarily on how old the equipment is.  The equipment typically must be less than 90 days old and have significant value.   In most cases full financial information must be submitted. The last 2 years business tax returns, interim financial statement will be required.

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When it comes to computer electronic equipment, especially desktop computers, laptops, and software, after 1-2 years, the value will have dropped dramatically.   Values will drop possibly as much as 50% – 75% in that time and the amount of working capital that can be obtained in a loan against computer equipment, or computer equipment leaseback, will be substantially reduced.

If the lender were to repossess the collateral, employ an outside vendor to re-market the equipment, they will only get 10 – 20 cents on the dollar.  This results in making the repossession of the collateral possibly not worthwhile to the lender and may lenders will not repossess the collateral.

As a result, in many cases, lenders will consider computer equipment almost an unsecured transaction, which has an impact on the credit review and approval process.   If an applicant gets approved for a leaseback of computer equipment and makes at least half the payments, it is very likely the equipment will never be repossessed, even if there is a default after the halfway point.

Regardless of the risk and credit issues, computer equipment is a very realistic and unique funding options for almost all businesses.    There are several reasons why a loan against equipment in the $10,000 to $50,000 range is very viable.  More businesses have equipment than any other asset.   More businesses will qualify for $10,000 to $50,000 in financing then will qualify for $100,000 to $250,000 in financing. These factors put more businesses in play for funding than any other secured funding program

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