Sales and Leaseback

A sale and leaseback is an arrangement in which the company that sells an asset can lease back that same asset from the purchaser. It is a simple financial transaction which allows a person to lease an asset back to themselves after selling it. 

Under the transaction, the asset previously owned by the seller is sold to a lender and is leased back to the owner for a long term. 

 A company usually enters a leaseback for accounting or taxation purposes, as you can transfer the asset to the holding company, but you would still be able to use it. 

This transaction allows the leaser to use the asset but not own it. You can also sell the asset for a cash influx and then it can be leased back to you.

Cashflow

Immediate cash injection into the business whilst removing the risk of fluctuations of the asset.

BENEFITS

Reduced risk

You pass over the responsibility of vehicle disposal to the contract hire company; this means they bear the risk of fluctuation values.

BENEFITS

Flexible

A leaseback transaction can help improve a company's balance sheet health: The liability on the balance sheet will go down (by avoiding more debt), and current assets will show an increase (in the form of cash and the lease agreement).

BENEFITS

Simple

Simplified budgeting: Switching to leasing can help make with assets such as vehicle fleets, and the budgeting of future additions.

BENEFITS

Sales and Leaseback FAQS

Who is suitable?

The most common users of sale-leasebacks are builders, vehicle/fleet management or companies with high-cost fixed assets.

You must also show that you have a suitable trading history and a healthy balance sheet will get a better capital sum from an investor. 

What are the drawbacks?

Any future appreciation in the value of the property is no longer available to the seller. The company can no longer enjoy the value of the property as part of any sale of the business.

How Much Does It Cost?

The cost of a sale and leaseback can range between 2%-20% APR. Determining where you would fall within this range is difficult, as so many variables make up the total cost of the facility. The variables include depreciation, size of the facility, credit, and lenders. Depreciation profile of the asset, this is a key factor that lender will consider when working out interest rates and APR as they will be holding the asset for a period. There are a number of lenders that facilitate sale and leaseback a few worth noting are Nucleus, Bibby, and close brothers. Another factor is business credit and personal credit. As every financial product credit history plays a big part in determining what cost the facility will cost you.

 In summary, it is difficult to put an exact figure on its “cost” as there are so many variables that determine it.

Qualifing questions

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