The Presses Are Paid Off. The Business Is Short of Cash.
A business can own several million dollars of productive equipment, free of debt, and still be unable to fund its next quarter. The assets are there. They are simply not in a form anyone will accept.
Equipment that has been paid off stops appearing anywhere useful. It is depreciated toward zero on the balance sheet, it does not show up in earnings, and a lender pricing a loan on last year’s profit sees none of it. The machines keep printing regardless.
A printer with $3.6 million of presses and no room
Take an illustrative case. A commercial printer runs $18 million of revenue on sheetfed presses, a digital line and finishing equipment bought over the previous decade, all owned outright. Two difficult years brought earnings down to $900,000, and the company carries $1.2 million of existing debt.
It has work coming. It needs cash to staff up, buy paper ahead of a large program and clear a backlog of maintenance before the fourth quarter.
An appraiser puts the equipment at $5.2 million as a working line in place and $3.6 million at orderly liquidation value, which is what it would bring sold in an unhurried process. Lenders work from the liquidation figure, because that is the number that matters if they ever have to sell it. This is also the first surprise for most owners: the fair market value of a running production line is not the number anyone will lend against.
Three routes to cash, on the same company in the same week.
A loan sized on earnings produces about $600,000. Two times $900,000 of EBITDA, less the $1.2 million already owed. The equipment is not part of that calculation at all.
An equipment-secured refinance at 60 percent of the liquidation value produces $2.16 million. The company keeps title to the machines, and the lender takes a security interest.
A sale-leaseback at 75 percent of the liquidation value produces $2.70 million. Advance rates between 70 and 80 percent of liquidation value are common in this structure. The company sells the equipment to the lessor and leases it straight back, with nothing changing on the shop floor.
What the extra cash costs
The sale-leaseback runs 48 months at an illustrative 11 percent: $69,800 a month, $3.35 million paid in total, $650,000 of financing cost.
The refinance runs 48 months at 10 percent: $54,800 a month, $2.63 million in total, $470,000 of cost.
So the structure that raises $540,000 more costs $180,000 more over four years and $15,000 more a month. That is the trade, and it is a narrower one than most owners expect.
What the printer gives up
The honest version includes what the company loses, and it is not nothing.
It no longer owns the equipment. At the end of the term it either buys the machines back under a purchase option or the lessor still holds them. The structure of that option is the single most important term in the document, and it varies from a nominal buyout to a payment set by a future appraisal.
The payment is fixed. A print business with a slow first quarter still owes $69,800 in January. Equipment financing is unforgiving in exactly the way earnings are variable, which is why the term should be set against the work the equipment is committed to rather than against the best year in the file.
The collateral is spoken for. Once the presses are in a lease, they are not available for a different facility later. A business that may need an asset-based line within a year should decide the order of those two things deliberately.
And the tax treatment follows the structure. Equipment depreciated to near zero has a low book value, so a genuine sale can trigger recapture of that depreciation as ordinary income. A lease with a nominal purchase option is generally treated as a financing rather than a sale, which avoids that outcome. It is worth knowing which one is being signed before the cash arrives.
When the structure earns its cost
A sale-leaseback works when three things are true. The equipment is genuinely productive rather than idle, because the payment has to come from what the machines earn. The need is for a defined amount over a defined period, not an open-ended hole. And the alternative on the table is materially smaller, which is usually the case for an asset-heavy business after a weak year.
It works badly as a last resort. The same appraisal that supports $2.70 million today supports less after another poor quarter, and a company that waits until payroll is at risk negotiates from a position that shows up in the pricing.
The printer in this example is not distressed. It is asset-rich and earnings-light, in a business where those two things go together, and it has a fourth quarter that needs funding now rather than after the earnings recover.
How Thalos Capital Approaches This
Thalos Capital works borrower-side on equipment financing from $50 thousand to $100 million and above, across the United States, including refinancing and sale-leaseback of equipment a business already owns.
The work starts with what the equipment is actually worth to a financing source: an appraisal basis that holds up, the advance rate each source will apply to it, the term against the asset’s remaining working life, and the purchase option at the end. Those four terms move more money than the rate does.
Then it goes to more than one source, because advance rates on the same appraisal differ widely, and because the difference between 60 and 75 percent of liquidation value on a $3.6 million line of equipment is $540,000 the business either has or does not.
Most financing situations have more options than the borrower initially sees. A conversation is enough to map them. Submit your financing request at https://thaloscapital.com/contact.