YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE!
UNDERSTANDING THE SALE AND LEASEBACK TRANSACTION
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 - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Sale and leaseback transactions are sometimes a truly perfect solution to cash flow needs. In some ways, it’s a ' perfect storm' of financing - your business gets to keep the asset in question (typically equipment or real estate) while at the same time employing its use and possession.
By the way, that could include your corporate jet - although we don't run into a lot of those these days.
WHAT ARE THE 5 KEY REASONS FOR CONSIDERING SALE LEASEBACKS?
What are the fundamental reasons for choosing the leaseback? It usually comes down to:
1. A need for access to capital that otherwise might not be available, or available the rate and structure the business owner/manager desires
2. It’s sometimes a more efficient and quicker process than starting the journey into looking for new debt solutions or considering ownership dilution from new equity sources. Alternately the owner/owners of the business are now required to put in additional personal funds as opposed to using a finance lease under the leaseback strategy.
3.The ongoing need and use of the asset to operate and grow the business - otherwise, the asset should probably be sold!
4.In certain cases, as we mentioned, rates and costs of financing might be more attractive under the sale/leaseback relative to the lease payments and your lease liability
5. Because of the nature of how the transaction is recorded, the leaseback, properly structured, can enhance the overall ROI - ' return on investment.’ Discuss leaseback accounting with your accounting team or tax advisor.
REAL ESTATE IS A BUSINESS ASSET THAT IS OFTEN CONSIDERED FOR LEASEBACK FUNDING
As we noted, any asset of the business can theoretically be sold and leased back. A typical solution is business real estate, i.e. the company operating premises. Even Canadian banks in recent years have shed their massive office towers under this effective strategy. - And they, of course, still inhabit the buildings.
YOUR BUSINESS ASSETS
The other asset category is business equipment, which, while depreciating, still has valuable use to the business. That raises the point that it’s important to consider the leaseback's financial and tax consequences - for example, if the funds received are more significant than the present value of the equipment, a profit on the transaction might have to be reported. The value of the asset in a leaseback transaction can also be addressed via an appraisal, informal or otherwise. Some appraisers do desktop appraisals. Understanding the fair value of the asset or assets in question versus the carrying amount on your balance sheet is key to a successful transaction.
WHAT TYPE OF LEASE IS USED IN LEASEBACKS
When you enter into the sale and lease financing strategy with the buyer lessor your choices are the same as any other lease financing transaction. You can structure your deal as a capital ' lease to own' or an operating ' lease to use. ' The operating lease might be perfect for things such as a technology transaction for computers and telecom equipt. For example.
And that corporate jet we were talking about? All of a sudden is a perfect candidate for an operating lease! Truth be told most transactions are structured as finance leases.
IS AN APPRAISAL REQUIRED
We caution clients that it's always important at the start of considering such a transaction it’s important to fully understand the value of the equipment or asset being re-financed. That residual value must be well understood in the context of your company's needs for the asset and the financing structure required for short lease term or long-term needs.
CONCLUSION
Seek out a trusted, credible and experienced Canadian business financing advisor who can help you put together a winning strategy on refinancing business assets. The impossible just became possible. If you are looking to fund assets you own and still maintain the right of use back from the buyer while accessing capital, call the team at 7 Park Avenue Financial.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop
7 Park Avenue Financial/Copyright/2021/Rights Reserved
