YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE SOLUTIONS!
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - INFO@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
A Sale and leaseback strategy is an often underutilized method of finance resolution for Canadian business. Knowing what some key issues are in leaseback financing and how to address them is key to success in this area of finance. Let's dig in.
The simplicity of leasebacks is just that. It's a simple concept where you sell and immediately lease-back the asset in question. The two logical asset categories are equipment and/or real estate. It works for both.
While you, in effect, give up temporary ownership of the asset, the good news is that you still possess and use those assets. The actual valuation of the asset is absolutely critical to your success in this type of financing. The most common method of addressing this issue is a third-party appraisal that the lessor/lender often mandates.
Once that lessor/lender determines that you own the asset outright (this is done through searches of public records) they will often mandate an appraisal via an appraiser they know and are comfortable with. We encourage all our clients not to undertake the appraisal/valuation process until the leasing company/commercial lender approves who that appraiser is. The bottom line - they have their favourites!
While business owners/managers tend to view the importance of this type of finance from a ' cash flow ' perspective it's also important to address the balance sheet and tax issues that might arise. This is a great time to discuss the issue with your accountant.
One potential pitfall is that you want to know if the actual cash you receive is greater than the depreciated balance the asset shows on your financial statements. This is probably more applicable to real estate transactions where the transaction's incoming cash flow might be greater than the amount showing as value on the balance sheet. Bottom line - this has the potential to generate an income tax obligation.
The key benefit of lease-back financing is of course the additional cash your firm now has, as well as the potential increase in owner equity.
Why do Canadian businesses pursue leaseback financing? Typically issues have arisen that create the need to source external cash; when additional commercial debt or owner equity cannot be raised, enter the sale and leaseback solution! While it may sometimes be a more expensive way to raise cash, it sometimes also might be the only way!
Key benefits of this type of finance strategy include the ability to deploy capital in another party of your business, or in some cases; you can re-do your overall debt situation, which more often than not improves some of those balance sheet ratios.
In certain situations where no ' financial stress' exists in the business, owners choose to re-finance this method to free up owner equity they have built up in the business. In the case of real estate, many firms have realized (even our chartered banks, by the way) that their real estate holdings are no longer ' core' to their business.
If you're looking to maximize on a foolproof formula for successful sale and leaseback financing seek out and speak to a trusted credible and experienced Canadian business financing advisor who can assist you with your funding needs via this somewhat unique financial strategy not often considered by all.
Stan Prokop
