Leaseback – Why is heavy equipment best?
What equipment is best to use for a leaseback? In a leaseback transaction, the equipment is sold. The seller receives a windfall of cash, then immediately leases the equipment back to own without ever relinquishing the equipment. Heavy equipment, such as construction equipment, is the best equipment to use. Tractors used for 18 wheelers can also be very good collateral to use for such a transaction.
Heavy equipment of this type holds it’s value in a leaseback. It takes longer to become obsolete. Other type of equipment such as computer equipment, medical equipment, landscaping equipment, even Restaurant equipment, obsolete more quickly.
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Some types of heavy equipment, most especially construction equipment, may still be very useful and desirable, even when it is 15, 20 years old. That is if the condition is still good. This is true especially for construction equipment.
With the construction industry being in a major slump, both residential and commercial, this is a surprise. Construction equipment maintains it’s value in a leaseback in large part because this equipment is so widely used and has a large secondary market. There are many venues to sell Construction equipment in the event of a default. Tractors for the trucking industry will always be in demand for a good price. There is a large secondary and wholesale venue for tractors.
Prices will be relatively stable for this type of equipment over time. Lenders know approximately what minimum price they will receive if they hold this equipment as collateral, which is why they are considered desirable types of equipment in a leaseback transaction.
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