Sale and leaseback finances allow businesses to raise capital by selling back assets that they own to a funder or bank, in return for cash. The funder then leases the asset back to the company over an agreed period.
If, for example, you have bought IT equipment, you can sell it back to a leasing provider such as CHG-MERIDIAN, and receive a cash sum. However, if you still need to use the IT equipment within your business, you can lease it back.
Most commonly used by businesses with lots of expensive equipment, sale and leaseback can be an attractive method of raising capital. While a loan would show up on a company’s balance sheet as a debt, a leaseback transaction can actually help improve the balance sheet, bringing the liability down and increasing the current assets.
Sale and leaseback is a financing strategy to consider for companies with valuable assets who are looking to free up capital and generate a cash injection, without giving up access to their assets totally.
This type of financing can also be a good option for businesses unable to access credit through traditional providers, such as banks, as it allows the business to unlock capital without raising secured debt.
Assets used to back this type of finance are usually fixed assets, including healthcare and IT equipment:
There are two main conditions any company must meet to qualify for sales and leaseback financing which are:
Entering a sale and leaseback agreement offers several benefits such as the seller being able to quickly generate working capital while maintaining full use of the asset. There is also zero disruption to the business, as you continue to retain all the usage benefits, and transfer the risk of ownership and disposal to the funder.
The other benefits of sale and leaseback include:
Whereas traditional loans don’t usually cover the full cost of the investment, sales and leaseback financing typically covers 100% of the investment cost.
By selling the asset, sale and leaseback allows the business to generate cash, creating an additional capital budget based on currently-owned assets. This not only removes the risks of ownership assets but can also help to accelerate future projects.
With sale and leaseback, you’ll be able to access the asset after the sale. This means you’ll have access to a cash injection while retaining the full value of the asset without disruption to your business operations.
Sale and leaseback contracts usually offer a high level of flexibility, meaning terms such as the length of the contract can be negotiated in line with the seller’s needs.
A sale and leaseback finance agreement match the useful lifecycle of the asset. And once the contract is up, the asset can either be returned or renewed.
All rental payments made under a sale and leaseback finance approach are fully tax-deductible.
The sale and leaseback of assets remove an element of risk for the business. When you sell your assets, you effectively hand over responsibility for them to the buyer and they take on the risk.
Of course, as with any financing model, sale and leaseback can also raise some potential disadvantages.
The main disadvantage to consider is whether your company will lose out by giving up the asset. While you’ll still be able to access it for the duration of the agreement, you will no longer own it. This is particularly important to keep in mind with any assets that have the potential to increase in value over time or those that were owned outright without any debt attached to them.
We can offer your business a sale and leaseback solution on a wide variety of assets. Our sale and leaseback process is non-disruptive and enables you to remove complexity and accelerate future opportunities.
If the equipment is less than four months old, we can pay you the original purchase price. If it’s older than four months, we will offer you the net book value of the assets.
You’ll also benefit from our end of lifecycle services including certified data erasure, which will help your GDPR responsibility.
For more information or to discuss our sale and leaseback solution and how it can maximise the value of your existing technology in more detail, please contact us.