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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Sale-leaseback transactions present a unique opportunity to monetize existing equipment and real estate assets while still enjoying the benefits to the business of those assets. Many owners/financial managers are unfamiliar with the process or simply don’t understand when this type of financing is most applicable to their business. Let us, therefore, journey to the center of leaseback finance! Let's dig in.

What then is the key driver in this whole process?  Simply speaking, it allows your company to use assets that are existing in the business while utilizing those assets to generate profits, hopefully.

What can these funds be used for when a leaseback is completed. Numerous scenarios include:

Repayment of any existing debt

Generation of cash flow and working capital for the business

Owner proceeds

Partnership payouts

Financing new assets required in the business

The documentation and legality surrounding this financing method are fundamental - Title transfers to your lender, typically a bank but most often a commercial financing company. Based on the agreed-upon value of the transaction, your company makes monthly payments for a pre-agreed term. It's important this term could be short, i.e. a year, wherein it's called a ' bridge loan,' or the amortization might be 3, 5, 7, or even 10 years depending on the asset financed.

When traditional financing via Canadian chartered banks is not available, business owners/managers typically use this financing for some turnaround/restructuring of their business.  We note to clients that it's important they discuss with their accountants any positive (or negative) implications around tax and balance sheets.

The size of your financing will often dictate what lender is optimal for your transaction.  Also factoring into that equation is the asset's nature - which typically includes plant assets, real estate, office technology, construction equipment (trendy!) and other miscellaneous asset categories.

Many business owners/managers contemplating sale-leaseback transaction financing don't fully comprehend either the requirement for an appraisal or valuation, the nature of that whole process, and how the outcome affects your financing.

Appraisals and valuations affect the value of the asset concerning the financing request. Lenders will focus on market values and liquidation values (lenders seem to focus on worst-case scenarios, surprisingly!).  You would rarely achieve 100% financing on any valuation during a leaseback financing - it's often a healthy percentage of the total value of the asset or assets in question.

If you're looking to venture where you haven’t been before when it comes to considering a leaseback of assets, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your needs.

Stan Prokop