Quick answer
An equipment sale-leaseback lets a Canadian business sell equipment it owns and keep using it under a lease from the buyer. Start with the proposed sale price, deduct any payout and cash withheld at closing, then check whether the resulting deposit meets the business need. Compare that cash with the ongoing rent and the end-of-term terms. If retaining ownership matters, obtain a quote for a secured refinance on the same equipment.
Key takeaways
- Verify which company owns the equipment and what the current creditor requires to release it.
- Use the proposed sale price, dated payout and closing deductions to estimate the amount you can spend.
- Compare the new payments with the old obligations that will actually end, and check how you can keep, return or replace the equipment.
Know what changes at closing
In an equipment sale-leaseback, the business sells the machine to the buyer and signs an agreement to lease it back. Title transfers under the sale documents and the lease governs the business's right to use the machine. That can let production continue at the same location, provided the agreements, insurance and any necessary permissions are in place. Ask whether the lease limits relocation, modifications, subleasing or use by another company in the group.
In a conventional secured refinance, the business generally retains ownership and gives a lender a security interest in the equipment. New loan proceeds can pay out existing debt and may leave cash for the business. The loan has its own repayment, collateral and payout terms. To compare both routes, look at the cash available on the same closing date and what you can do with the equipment during and after the term.
Identify the purpose of the proceeds. If the business needs a one-time supplier deposit, write down its amount and due date. If cash is short because sales are seasonal, map the expected receipts and the periods when rent would be hardest to carry. An opening deposit can fund a specific obligation. It can also be used up quickly if the business needs it every month to cover an operating shortfall.
Build the ownership and release file
Get the original purchase invoice and proof of payment or acquisition. Record the legal owner, location, serial number, attachments, condition and hours or kilometres where relevant. A parent company, affiliate or shareholder may own an asset the operating business uses. If the invoice, insurance and fixed asset register identify different parties, have counsel establish who can sign the sale and lease. If the equipment is already leased, review the existing lease and any permitted buyout before assuming the business owns it.
Ask counsel which security registries and names to search. Ontario's Personal Property Security Registration system is one example. Use the search and the existing loan documents together. A registration against company assets can cover equipment even when the loan statements use a different description. For equipment installed as part of a larger system, ask whether any site agreement or other claim affects transfer or continued use. Check the rules and registry for each relevant jurisdiction.
Get a dated payout statement from the creditor and ask what the creditor will release against that payment. If the old facility also secures other assets, a release of the equipment being sold may need a separate agreement. Have the parties identify the serial numbers to release, the amount due on the actual closing date and who will deliver or register the release. If the closing date moves, refresh the payout and check whether another scheduled payment or charge changes the amount.
Review the flow of funds before signing
| Step | Document to check | Decision it supports |
|---|---|---|
| Agree on the equipment and price | Asset schedule and written purchase proposal | Which items are sold and what price the buyer is prepared to pay. |
| Deal with existing security | Dated payout, release terms and registration search results | What must be paid and which assets the creditor will release. |
| Close and begin the lease | Sale agreement, lease schedule, proof of insurance and closing statement | Who gets each payment, what the business receives and when rent starts. |
| Verify completion | Payment confirmation, release evidence and signed documents | Whether funds arrived and which obligations remain active. |
Use the written sale price for the calculation. An appraisal can inform the buyer's price. The buyer may also consider condition, marketability and which items are included. The original invoice supports ownership and can help describe the asset. Ask which valuation basis the buyer used and whether the price changes if an inspection finds missing or worn parts.
Have the provider show a closing statement with the gross price and each deduction. Identify amounts paid to an existing creditor, closing fees, first rent and any security deposit or holdback. A deposit may be refundable or applied later under the lease. Show it as a deduction from opening cash and add it back to the forecast only where the contract specifies when and how it is returned or credited. Confirm when the remaining proceeds become available to the operating business.
Before closing, check which old payments will stop and which obligations will continue. The creditor may release one machine while the operating line or other equipment loans stay in place. After closing, match the amounts paid to each party against the statement. Ask for the release evidence, verify the new rent schedule and check the next scheduled withdrawal on the old facility with the creditor. Keep any unresolved deduction or registration on a follow-up list with a responsible person and a date.
Worked example for a machine with an existing balance
Suppose a buyer offers $148,000 for a machine. At closing, the provider pays $87,000 to the existing creditor and deducts $2,500 of closing costs, a $3,500 security deposit and the first $4,200 rent payment. The business receives $50,800. If its supplier needs $48,000 and the operator wants $7,000 of cash left for payroll, the total need is $55,000. The expected deposit leaves a $4,200 gap.
Assume the first rent payment counts as one of 36 equal monthly payments. The 35 remaining payments total $147,000. If the business wants to exercise a written $12,000 purchase option at term end, that raises the cash due after closing to $159,000 before any later deposit credit or additional charge. If the closing actually extinguishes an old $3,900 monthly payment, the new payment is $300 higher on dates when both obligations would otherwise have been active. Compare the actual dates because the old loan and the new lease may have different end dates.
These figures are hypothetical. Read a competing refinance quote from the same closing date. Use its net deposit and complete repayment schedule, including any balance at maturity. In each case, test whether the business can cover a month with lower receipts and higher repair expenses. The option with slightly more closing cash may require more cash later or give you less flexibility to change equipment.
Check the obligations while the machine stays with you
Ask when rent starts, who insures the asset and who handles maintenance and repairs. Check what happens after a breakdown or total loss. If the machine is critical, ask how the agreement treats an upgrade, replacement or move to a new location. If you plan to sell the business before the lease expires, check whether the lease can be assigned and what consent or payout would be needed.
Read the end-of-term provisions alongside the payment schedule. The contract may provide a fixed purchase price, a market-value purchase option, a return or an extension. Find out when notice is due, what paperwork transfers title if you buy and what removal and condition rules apply if you return the machine. Ask your accountant to review the actual sale and lease documents for the appropriate accounting treatment.
Frequently asked questions
Can I sell equipment that has a balance owing?
Possibly. Confirm the owner and obtain a written payout and release path before agreeing to the sale. Review the sale-leaseback eligibility guide for the asset records to gather. If the required payoff and closing deductions absorb the proposed sale price, the transaction may produce little or no operating cash.
Does a bill of sale remove the old security registration?
Confirm the creditor's release requirements and have counsel verify the required registration or other evidence after closing. Keep the bill of sale and release evidence together with the serial number.
Can the equipment stay in operation while it changes hands?
That is the purpose of the leaseback. Align the sale closing, start of the lease and insurance so the business has permission and coverage to keep using the equipment. Confirm inspections and any other conditions before relying on uninterrupted use.
Tools and next steps
Use the cash-flow calculator to put the net proceeds, old payoff and new rent dates on one calendar. For a review of owned commercial equipment, see equipment refinance and sale-leaseback, contact Mehmi Financial Group or call 1-833-863-4644. Bring the ownership file, latest payout statement and what you plan to fund.
Reviewed November 12, 2026. Mehmi Financial Group. See Jodhbir Mehmi’s author profile and our editorial standards.
Sources
- International Accounting Standards Board, sale and leaseback overview. Transaction definition.
- Ontario, Personal Property Security Registration. Ontario registration and search framework.