Quick answer: Refinancing or a sale-leaseback may release equity from eligible business equipment, subject to valuation, existing liens and the business’s repayment capacity. Compare net cash after payouts and fees with the full replacement payment schedule and any change in ownership or security.
What a sale-leaseback is (in plain English)
A sale-leaseback turns owned equipment into cash without losing its use. You sell the asset to a financing partner and immediately lease it back.
You unlock working capital today and repay over time through lease payments, with a buyout option at term-end.
Mehmi Financial Group structures Refinancing & Sale-Leaseback deals for Canadian SMEs across transportation, construction, manufacturing, hospitality, agriculture, and more. We also sell equipment directly from our in-house inventory if you’re upgrading or replacing gear.
The four numbers you need before you calculate
- FMV (Fair Market Value) – the agreed sale price for your asset today (often supported by comps, invoices, or an appraisal).
- Advance Rate (LTV) – percentage of FMV a lender will advance as cash (typical ranges vary by asset and age).
- Term & Rate – lease duration (months) and rate (APR or money factor).
- Residual / Buyout – your end-of-term purchase option (e.g., $10, 10% of cost, or FMV).
Helpful links as you prep numbers:
- Check your asset category in Eligible Equipment.
- Model payments with the Calculator.
- Compare structures: Equipment Leases vs Equipment Loans.
- For revolving purchases, consider an Equipment Line of Credit.
- Explore Asset-Based Lending if you’re also financing AR/inventory.
The sale-leaseback math, step by step
Step 1 — Estimate cash you’ll receive today (net proceeds)
Gross advance = FMV × LTV
Net proceeds = Gross advance − existing lien payout − fees
Fees vary by file (origination/admin, PPSA/registration, appraisal where applicable). Taxes may be financed or paid up front depending on structure. If your equipment has a lien, that lien is typically paid out at closing.
Step 2 — Calculate your monthly payment
Two common structures exist. Confirm which one your funding partner uses before you model:
- Full-capitalized lease: Payments are based on the full FMV (cap cost) with a chosen residual.
- LTV-principal lease: Payments are based only on the advanced amount (lower cap), with an appropriate residual.
Payment formula (balloon/residual lease):
Monthly Payment = (C−R(1+i)n) i1−(1+i)−n\big(C - \dfrac{R}{(1+i)^n}\big)\;\dfrac{i}{1-(1+i)^{-n}}
Where:
C = capitalized cost (FMV or advanced amount)
R = residual/buyout at term-end
i = monthly rate (APR ÷ 12)
n = number of months
You can test scenarios instantly with our Calculator, then have our team quote a firm approval.
Worked example (illustrative only)
Assumptions
- FMV: $220,000
- LTV: 75% → Gross advance $165,000
- Fees: 2% of financed base + $595 doc (illustrative)
- Existing lien payout: $60,000
- Term: 60 months
- APR: 11% (monthly rate = 0.11/12)
- Residual: 10% (either of FMV or of financed base per structure)
Net proceeds today
| Item | Calculation | Amount (CAD) |
|---|---|---|
| Fair Market Value (FMV) | — | $220,000 |
| Gross Advance (75% LTV) | 220,000 × 0.75 | $165,000 |
| Origination (2% of advance) | 165,000 × 0.02 | −$3,300 |
| Doc / Registration | Fixed | −$595 |
| Existing Lien Payout | Provided by lender at closing | −$60,000 |
| Estimated Net Proceeds | 165,000 − 3,300 − 595 − 60,000 | $101,105 |
Monthly payment comparison
| Scenario | Cap Cost (C) | Residual (R) | Term (n) | Rate (APR) | Indicative Monthly | Total Paid + Residual* |
|---|---|---|---|---|---|---|
| Full-Capitalized Lease | $220,000 | $22,000 (10% FMV) | 60 | 11% | ≈ $4,506.67 | ≈ $292,400 |
| LTV-Principal Lease (residual on cap) | $165,000 | $16,500 (10% of cap) | 60 | 11% | ≈ $3,380.00 | ≈ $219,300 |
| LTV-Principal Lease (residual on FMV) | $165,000 | $22,000 (10% FMV) | 60 | 11% | ≈ $3,310.83 | ≈ $220,650 |
*Totals exclude taxes/fees and are for structure-to-structure comparison only.
Takeaway: the structure you choose changes both cash today and payment shape. Full-capitalized leases often show higher payments but may mirror equipment’s full cost; LTV-principal leases lower payments but cap the financed base.
When a sale-leaseback beats other options
- You own equipment free and clear or with low remaining debt.
- You need cash now for payroll, deposits, materials, or a new contract.
- You want to preserve bank lines for other needs.
- You prefer an operating-style expense with a clear buyout path.
If your assets are already leveraged or if you mainly need revolving flexibility, compare with Business Refinancing or a Line of Credit. For a simple working-capital top-up, consider a Working Capital Loan.
Tax & accounting notes (speak to your accountant)
Leases and sale-leasebacks can be treated differently for tax and accounting depending on buyout value, term, and structure. Many Canadian SMEs expense lease payments; ownership paths may involve depreciation and interest. Confirm treatment with your accountant and model both cash and after-tax impact using our Calculator.
Real-world case study (Ontario contractor)
An earthworks contractor owned two loaders and a dozer. Growth opportunities required cash for mobilization and crews before receivables hit.
- Mehmi structured a sale-leaseback on all three units at a blended LTV, paid out a small lien, and delivered net proceeds.
- The client chose a 10% residual, 60-month term to keep payments predictable.
- Proceeds covered deposits and onboarding for a larger municipal job. Revenues grew, and the client later exercised a mid-term refinance to reduce payments using Business Refinancing.
Common pitfalls (and easy fixes)
- Modeling the wrong cap cost. Confirm whether payments are based on FMV or advanced amount.
- Ignoring fees and taxes. Include them in cash-in/cash-out for a realistic picture.
- Forgetting the buyout. Your end-of-term residual (e.g., 10%) is part of the total cost of ownership.
- Not comparing alternatives. For frequent purchases, an Equipment Line of Credit might lower overall carrying cost.
- Mismatching term vs. useful life. Align the lease term to the asset’s remaining life; see our industry guidance: Transportation & Trucking, Construction & Contractors, Manufacturing & Wholesale, Hospitality & Food Service, Farming & Agriculture.
FAQ: Sale-Leaseback Calculations in Canada
How do I pick the right residual?
Choose a residual that matches expected resale value and your buyout plan. Common SME choices are $10 buyout or ~10% of cap cost.
What LTV can I expect?
It depends on asset type, age, condition, and marketability. Older/specialized assets often see lower LTVs; newer mainstream units may see higher.
Can I include taxes and fees in the lease?
Often, yes. Many clients finance taxes/fees for cash-flow relief; others pay them at closing. We’ll structure it either way.
Is a sale-leaseback only for “clear title” equipment?
No. If a lien exists, we typically pay it out at closing and net you the difference (see the table above).
What if I need more cash than the LTV allows?
Blend tools: add a Working Capital Loan or Asset-Based Lending against receivables/inventory.
How fast can it close?
Approval and funding timelines vary by lender, application completeness, and required conditions.
Ready to run your numbers?
Use the Calculator to model FMV, LTV, term, rate, and residual — then our credit analysts will structure the most cost-effective sale-leaseback for your situation. If you’re upgrading instead, we also sell equipment directly from our in-house Inventory.
Are you looking for a truck? Look at our used inventory.
Feel free to contact our credit analysts to get a firm quote, or read more about us here: About Us.
Authoritative references
- Innovation, Science and Economic Development Canada — Canada Small Business Financing Program:
The Canada Small Business Financing Program makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders.
Program eligibility, lender criteria, tax treatment, and product terms can change. Verify current official guidance and the final financing documents before making a decision.
Source perspective
BDC’s equipment-financing guide emphasizes the complete financing structure when comparing offers.
“Don’t focus only on interest rates”
For the equipment decision discussed here, compare the amount financed, payment schedule, collateral and remaining obligations alongside the quoted rate.