Equipment Sale and Leaseback: turn owned equipment into working capital

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What is an equipment sale and leaseback?

An equipment sale and leaseback runs two transactions together: you sell equipment your organization already owns to a leasing company, then lease it back and keep it operating. The equipment never leaves your company.

You receive cash and pay lease payments from then on. Nothing else about the operation changes — only who holds title.
A standard equipment lease finances an asset you are about to acquire; a sale and leaseback (also called a sale-leaseback, equipment leaseback, or leaseback arrangement) finances one you already own.
CHG-MERIDIAN buys the assets at an agreed value, becomes legal owner, and leases them back under a fair market value structure, taking on the residual value risk you carried alone.

The trigger is financial, not operational: organizations use sale-leaseback financing to free capital locked in productive assets, ease a tightening covenant, or fund a project without new debt.

How is an equipment sale and leaseback treated on the balance sheet?

Under US GAAP, the accounting for an equipment sale and leaseback turns on one question: does the transfer qualify as a sale under ASC 606? First, be clear this is not off-balance-sheet financing. Under ASC 842 the leaseback is still a lease, so a right-of-use asset and lease liability sit on your balance sheet either way. Confirm the treatment with your controller and auditors before signing.

The test is control, not paperwork Sale treatment is not about how the deal is labeled. Under ASC 606 it turns on one thing: does control of the equipment actually pass to the buyer-lessor?

When the transfer qualifies as a sale You derecognize the owned equipment and book the full gain or loss, adjusted for off-market terms. In its place, ASC 842 recognizes a right-of-use asset and lease liability for the leaseback. The owned asset leaves; the lease does not.

When the transfer fails the test It fails when control does not really pass, usually for one of two reasons: the leaseback is a finance lease for the seller-lessee, or a repurchase option not priced at fair market value on readily available assets. That makes it a failed sale and leaseback.

Where the model fits, where it does not, and who it is for.

An equipment sale and leaseback works when three conditions hold at once: you own assets with meaningful remaining useful life, those assets hold secondary-market value, and you need liquidity more than you need title. Miss one and a different structure serves you better.

Where an equipment sale and leaseback fits	Where it does not fit
Assets with meaningful remaining useful life	Equipment close to end of life, with little value left
Established secondary-market value: forklifts and material handling, enterprise IT infrastructure, production machinery, diagnostic imaging	Customized or purpose-built assets with no realistic resale market
You need liquidity more than you need title	Small scale, where transaction and valuation costs consume the benefit
You need liquidity more than you need title placeholder	Two hard blockers: equipment pledged as collateral (the lien must be released first), or a rule requiring you to hold title

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What happens at the end of an equipment sale and leaseback?

At the end of the term you have three options. Ownership transferred at the start, so returning the equipment is a normal outcome, not a loss.

Return the equipment to CHG-MERIDIAN, with logistics and disposition handled for you.

Extend the lease under revised terms reflecting current value.

Purchase the equipment back at fair market value.

This is where a leaseback differs from an equipment loan: a loan leaves title with you, and with it the depreciation, disposal obligation, and residual value risk; a leaseback moves all three to CHG-MERIDIAN at closing. Many organizations treat end of term as a scheduled refresh, moving to current-generation assets; for data-bearing IT assets, we handle certified data erasure and responsible disposition.

Advantages of an equipment sale and leaseback

Liquidity from equipment already in service

The capital is already yours, just sitting inside assets rather than the bank. A sale and leaseback converts it to usable cash without selling anything you need and without waiting for equipment to reach end of life.

Operations continue without interruption

The equipment stays where it is and keeps running with the same operators. No relocation, no downtime, no change to maintenance. For most organizations the only visible change is on the balance sheet.

Residual value risk transfers to CHG-MERIDIAN

Owning equipment means carrying the risk it is worth less at term-end than your depreciation assumed. After a sale and leaseback, CHG-MERIDIAN holds that risk; you pay for use, not for what the asset is worth afterward.

Funding without new debt or diluting equity

You raise capital against assets you already own, not new borrowing capacity or new shares. A lease liability is still recognized under ASC 842, so this is not off balance sheet, but the funding route is often available when a term loan or credit facility is constrained.

Predictable payments and full lifecycle visibility

Fixed lease payments replace the mix of depreciation, maintenance, and disposal cost that comes with ownership. tesma, the CHG-MERIDIAN asset management platform, gives a live view of every asset under the agreement across sites.

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How an Equipment Sale and Leaseback Works with CHG-MERIDIAN

CHG-MERIDIAN runs an equipment sale and leaseback in four stages: asset review, valuation, documentation, and funding. The equipment keeps running throughout.

Valuation decides the transaction. We assess age, condition, usage, configuration, and secondary market demand. Since 1979 we have set residual positions across IT, industrial, and healthcare, so valuations run on remarketing data, not a depreciation table.
Documentation covers the purchase agreement, lease schedule, and any lien releases on pledged assets. Have asset registers, purchase records, and serial detail ready to shorten the timeline.
We are independent. Not owned by a manufacturer or a bank, so your valuation is not shaped by a product line to protect or a balance sheet to fill.

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Equipment sale and leaseback: frequently asked questions

How is the sale price of the equipment determined?

Valuation sets it, not book value. CHG-MERIDIAN assesses each asset on age, condition, usage, configuration, and secondary market demand. That value becomes the purchase price and the leaseback payment. Book value is a reference, not the offer.

What is a failed sale and leaseback?

A sale and leaseback that does not qualify as a sale under ASC 606. The equipment stays on your balance sheet, the cash is a financing liability, and no gain is recognized. It typically fails when the leaseback is a finance lease for you, or you hold a repurchase option not at fair market value on readily available assets.

Who owns the equipment after a sale and leaseback?

CHG-MERIDIAN does. Title transfers at closing and stays with us through the term, unless you buy the assets back at fair market value at end of term. You keep full operational use throughout.

How is an equipment sale and leaseback different from an equipment loan?

A loan lends against equipment you own; you keep title, with the depreciation, residual value risk, and disposal. A sale and leaseback sells it and leases it back, moving those to the lessor. The loan keeps the owned asset on your balance sheet; a qualifying sale and leaseback derecognizes it, but ASC 842 recognizes a right-of-use asset and lease liability instead, so it is not off-balance-sheet financing.

Does a sale and leaseback affect existing debt covenants?

It can, in both directions, which is why finance teams model it first. Releasing capital from owned assets can improve liquidity ratios, while the right-of-use asset and lease liability recognized under ASC 842 affect leverage measures. If the equipment is pledged as collateral, that lien must be released before the sale. Review the specific covenant language with your lender and auditors.

What happens at the end of the leaseback term?

You have three options: return the equipment to CHG-MERIDIAN, extend the lease under revised terms, or purchase the equipment back at fair market value. Many organizations use end of term as a planned refresh, returning the original assets and moving to current-generation equipment under a new agreement. Notice periods and condition standards are documented at signing.