Unlocking Growth with Sale Leaseback Equipment Lease Back Financing | 7 Park Avenue Financial

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In today's fiercely competitive business world, navigating the complexities of sale-leaseback financing can mean the difference between thriving and merely surviving."

 "Unlock the power of sale-leaseback financing and transform your business financing struggles into a roadmap for unparalleled growth and prosperity

Exploring Sale Leaseback Financing: A Guide for Canadian Business Owners 

 Introduction to Sale Leaseback in Business Financing  

Canadian business owners are looking for some information they can trust on the concept of a sale leaseback.

Are there advantages to this type of financing, and more importantly, being a business owner or financial manager who likes alternatives, is there another solution to the sale leaseback of equipment cash flow dilemma?

Instead of viewing it solely as a financial transaction, consider Leasebacks as a strategic tool for optimizing your business assets.

Advantages of Sale Leaseback Strategies

Let’s examine the real-world advantages of a sale/leaseback type strategy. When structured properly this type of business financing allows you to obtain additional cash flow and working capital while not giving up the right to the ownership of business assets via a leasing company.

 The Equipment Sale Leaseback as a Solution to Working Capital Challenges 

Sale leaseback equipment financing often comes up as a profitable solution when firms are challenged by working capital and cash flow needs and requirements. The reality is that if you structure this type of financing properly it’s the ultimate business financing solution to a temporary business challenge.

Economic Benefits of Sale and Leaseback in Tight Times 

It is no secret that the sale and leasing back of business assets becomes more popular when economic times are 'tight'. The strategy is many times a positive and good decision because you are freeing up cash that is sitting in fixed assets that are not utilizing their maximum earning power for your business.

 Impact on Balance Sheet and Tax Implications 

Let’s not also forget that your balance sheet also improves at the same time because your overall debt to tangible net worth improves when utilizing a sale leaseback financing, and your write off (depreciation) and financing costs are also lowered at the same time! That's a solid one-two punch of good business news to any business owner.

Creative Strategies and Uses of Additional Capital  

In some ways, this method of business refinancing is an alternative and creative strategy. What your firm does with that additional capital is of course your decision - it can be used for general working capital purposes, a down payment on

on new and required assets, or to retire additional debt or loans that you might be carrying on your balance sheet. If you can use the new freed up capital to increase revenues and profits that is simply an additional benefit.

Key Considerations in Sale Leaseback Transactions  

We caution clients to look at two key areas in this type of transaction. It is critical to maximize the value of the transaction, so more often than not a qualified appraisal of the asset has true value for the business owner, and should not be considered a wasted expense.

Importance of Asset Appraisal and Loan-to-Value Ratios   

Remember also that most lenders when financing a sale leaseback transaction finance what is known as a percentage of loan to value.

An example might be that if an asset is appraised at 200,000.00 the lender might as a policy loan 60% of that value, so your ability to increase the value of the asset via a qualified appraisal provides additional working capital to you and of course comfort to the lessor or lender.

Rates are the second item to investigate, as you want to ensure you receive a market rate for this type of financing, which typically carries a premium to new equipment financing.

Comparing Interest Rates and Market Conditions

Is there an alternative to a sale leaseback equipment financing transaction? One of our favourites is a short-term bridge loan on the asset. In this transaction, you are not locked into a longer fixed term that often comes with sale leaseback financing, and you have the option to often pre-pay or temporarily renew the bridge loan on an annual basis. Bottom line, a very viable alternative.

 Key Takeaways 

1. Sale-Leaseback   is the selling an owned asset to a lessor and leasing it back, providing immediate capital while retaining use.

2. Financial Benefits: Understand the financial advantages, including unlocking capital tied up in assets and potential tax benefits.

3. Lease Terms: Comprehend lease duration, rental payments, and buyback options tailored to your business needs.

4. Asset Evaluation: Learn how the value of assets impacts the terms and feasibility of leaseback agreements.

5. Accounting Implications: Explore how sale-leaseback transactions affect your financial statements and ratios.

6. Tax Considerations: Recognize tax implications, like depreciation recapture and deductions, and consult with tax experts.

7. Risk Management: Assess potential risks, including market fluctuations and lease obligations, and devise strategies to mitigate them.

8. Industry Relevance: Analyze how sale-leasebacks apply to your specific industry, as nuances may exist.

9. Legal Framework: Familiarize yourself with the legal aspects, contracts, and compliance requirements.

10. Alternative Financing: Compare sale-leaseback with other financing options to make informed decisions.

 Conclusion: Maximizing Benefits in Sale Leaseback Financing 

Investigate the benefits and the alternatives to sale-leaseback equipment financing if your firm has interim cash flow or balance sheet enhancement needs.

Call 7 Park Avenue Financial , a trusted, credible and experienced Canadian business financing advisor who can assist you in structuring a transaction that optimizes benefits and increases cash flow.

Discover how equipment lease back financing can align with sustainability goals by extending the lifecycle of assets

 FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION 

What is Sale Leaseback Financing, and how does it work?

Sale-Leaseback Financing is a transaction where a business sells its owned equipment or property via a sale leaseback agreement  and then leases it back from the buyer. This allows the business to free up capital while retaining the use of the assets which still have fair market value. Sale-leaseback works for companies wishing to retain assets and capitalize on equipment equity. In some cases, an operating lease might be considered by the lessor and owner - although typically a capital lease is the structure used. High cost fixed assets are excellent candidates for this type of financing.

What are the primary benefits of Sale Leaseback Financing?

The main benefits of Sale Leaseback Financing include unlocking capital tied up in assets, improving cash flow, avoiding depreciation expenses, and maintaining operational control of the equipment or property.

How does Equipment Lease Back Financing differ from traditional loans for equipment purchase?

Equipment Lease Back Financing provides a flexible alternative to traditional loans. Instead of borrowing money to purchase equipment, businesses can sell their existing equipment and lease it back, preserving cash for other needs.

Are there tax advantages associated with Sale Leaseback Financing

Yes, there can be tax advantages. Lease payments may be tax-deductible, potentially reducing the overall tax burden on the business. However, it's important to consult with a tax advisor for specific guidance.

What types of businesses can benefit from Sale Leaseback and Equipment Lease Back Financing?

Sale Leaseback and Equipment Lease Back Financing can benefit a wide range of businesses across various industries, including manufacturing, logistics, healthcare, and more. It is particularly useful for businesses with valuable equipment or real estate assets.

Why would a business choose Sale Leaseback Financing over traditional loans?

Sale Leaseback Financing offers the advantage of unlocking capital without taking on debt, providing more financial flexibility.

Can a business continue to use the equipment or property after the Sale Leaseback transaction?

Yes, in most cases, the business retains the operational use of the equipment or property through a lease agreement.

How can a business find reputable lenders or investors for Sale Leaseback transactions?

It's advisable to work with financial institutions, commercial financing company leasing companies, or investors experienced in Sale-Leaseback Financing. Research and due diligence are essential in selecting the right partner.

How do I determine if my business is eligible for Sale Leaseback Financing?

Determining eligibility for Sale Leaseback Financing typically involves assessing the value of your equipment or property, your business's financial stability, and the willingness of potential investors or lenders. It's essential to consult with financial experts or specialized firms experienced in Sale Leaseback transactions to evaluate your eligibility accurately.

Are there any risks associated with Sale Leaseback transactions that I should be aware of?

Yes, there are potential risks, including the possibility of higher lease payments over time compared to the asset's depreciation, loss of ownership, and obligations to maintain the equipment or property. It's crucial to thoroughly review the terms of the leaseback agreement and seek legal and financial advice to mitigate these risks.

What are the typical lease terms and options available in Sale Leaseback Financing?

Lease terms for used equipment in Sale Leaseback Financing can vary but often range from 3 to 10 years. There are typically two primary options: operating leases, which offer flexibility but no ownership at the end of the term, and finance leases, which may provide an option to purchase the asset at the end of the lease. The specific terms and options can vary depending on the agreement negotiated with the investor or lender.

Can Sale Leaseback Financing be used for real estate properties as well as equipment?

Yes, Sale Leaseback Financing can be used for both real estate properties and equipment. The key requirement is that the asset being sold and leased back has value and can generate income for the business. Real estate Sale Leaseback transactions are common, but equipment Sale Leasebacks are also widely utilized.

Are there any industry-specific considerations when considering Sale Leaseback Financing?

Yes, industry-specific considerations can play a significant role for most small business owners.  Different industries may have varying leaseback options and potential benefits for a piece of equipment. For example, in healthcare, Sale Leaseback Financing can help hospitals free up capital, while in manufacturing, it can assist in upgrading machinery. It's essential to consult with experts familiar with your industry to explore the best options and potential advantages of Sale Leaseback Financing.