Sale Leasebacks
Are you looking to infuse cash into your business? Did you recently purchase equipment but now wish that you had financed it?
If you have equipment that you own outright, a sale leaseback may be a good option for you.
What is it?
The term sale leaseback is a shortened form of sale and lease back. It is a transaction where the business owner sells an asset to a finance company thereby becoming the lessee while the finance company becomes the lessor. The seller of the asset can continue to operate and use the asset as before but is no longer the asset’s owner.
An example of a sale leaseback could be as follows:
- You buy and pay for a skid steer from a vendor
- You contact LFS to do a sale leaseback and are approved by the finance company (funder)
- LFS transacts the sale leaseback and requests the necessary paperwork from you such as a bill of sale.
- You sign the lease agreement
- The finance company purchases the equipment from you and forwards you the proceeds from the sale
- You begin to make monthly payments in a new lease term
- At the end of the lease term, you can purchase the equipment for the buy-out amount
Advantage of a Sale Leaseback
The biggest advantage of a sale leaseback is that cash is infused back into your business allowing you flexibility to manage your cash/capital.
Disadvantage of a Sale Leaseback
One disadvantage of a sale leaseback is that you are no longer the owner of your asset because it has been sold to the finance company. You can buy it out at the end of the lease, so this is a temporary disadvantage.
Sale Leaseback is a Form of Refinancing
By definition, getting money out of paid-for assets is a form of refinancing. The difference with a sale leaseback is that it is usually done within a few months of acquisition. The acquisition might have been unplanned and time sensitive that required payment (i.e. an auction) or financing the acquisition ahead of time was simply not considered.
Essentially, the sale leaseback unwinds a recent cash purchase into a better suited financing product whereas a true refinance is generally associated with working capital needs, another acquisition or similar reasons.
If you own some equipment and would like to take advantage of a sale leaseback or a refinance, contact LFS today at 416-522-6556 to discuss your options!