YOUR COMPANY IS LOOKING FOR A SALE LEASEBACK OR BRIDGE LOAN ON EXISTING ASSETS
SALE AND LEASEBACK FINANCING SOLUTIONS
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Financing & Cash flow are the biggest issues facing business today.
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
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The sale lease back comes into consideration by Canadian business owners and financial managers for several reasons, and at several times. It's a textbook case of freeing up valuable working capital and making absolute sense of the asset buyback. Let's dig in.
WHY DOES A SALE LEASEBACK MAKE SENSE
A leaseback transaction makes sense at certain key points in a company's history. As firms struggle during revenue and profit challenges the owner/manager, prudent as he or she is, will look to the balance sheet for untapped capital. Those unencumbered (i.e. not financed) assets present a great opportunity to enhance cash flow and change the balance sheet optics.
LEASEBACK FINANCING ALLOWS YOU TO SELL THE ASSET AND USE THE ASSET TO RUN YOUR BUSINESS
It's never a perfect world but it certainly comes close to that when assets on your books are owned, have a useful life, and still have considerable value. In that case, the planets have aligned! Your ability to then ' sell back ‘the asset to a finance partner/buyer lessor via monthly lease payments can create profit and cash flow in those circumstances. Leaseback transactions can have a lease term or loan term of anyway from 1-5 years typically. The ultimate win/win for both the lessee and the buyer.
WHAT IS THE IMPORTANCE OF PRICE AN VALUATION IN THE ASSET BUYBACK?
The actual sell price and valuation of the asset is key in a sale-leaseback strategy. Additionally, dare we say it; your accountants must be comfortable with how the transaction will be recorded on the balance sheet and income statement presentation.
HOW DOES A SALE LEASEBACK STRENGTHEN THE BALANCE SHEET
It's always about ' cash being king' and cash proceeds received from the leaseback transaction strengthen your balance sheet via that lease agreement. We're the last persons to get exciting about accounting in a sale lease back - suffice to say that it’s absolutely critical to ensure that your transaction has the proper impact on balance sheet, cash on hand, debt, and depreciation. Bottom line, talk to the experts. Make sure you investigate the key parts of sale-leaseback accounting with your accounting team.
A TEMPORARY TRANSFER OF OWNERSHIP
We pointed out earlier that the win/win in a sale-leaseback is a productive asset that you own and are still using. The buyback means that you are transferring ownership to your lessor or lender for a specific period of time.
DO YOU NEED AN APPRAISAL WHEN CONSIDERING LEASEBACKS?
One of the most critical aspects of preparing for your refinancing in this manner is understanding the probable necessary need for an appraisal This typically is done by a third party firm - suffice to say that most owners we meet and talk to in this type of financing have a strong opinion of the value of the asset. Unfortunately, they are typically focusing on replacement cost, while a lessor or lender focuses on liquidation cost. Somewhere in the middle is probably the right answer!
DOES A BRIDGE LOAN OR A LEASE MAKE MORE SENSE
You will also want to demonstrate to your lessor or lender (sometimes the leaseback transaction is structured as a bridge loan or term debt - not a lease) there are no liens or encumbrances on your asset. This is quickly and economically established in Canada via a search under your provincial Personal Property Security Act.
CONCLUSION - AVOIDING THE PERCEPTION OF A CASH GRAB!
Cash flow is a great benefit of a buy back financing. Be forewarned that you don't want to be viewed as executing a cash grab - be prepared to demonstrate the purposes of the capital/cash flow you receive from the financing. A sale-leaseback is not desirable by any lender if a firm is in a death spiral.
Holy smokes, it appears to be true that asset refinancing via sale and leaseback transactions are a solid working capital replenishment strategy for the long term. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your refinancing needs.
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Stan Prokop
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