YOUR COMPANY IS LOOKING FOR A SALE LEASEBACK WORKING
CAPITAL SOLUTION!
USE THE EQUIPMENT SALE LEASEBACK TO ACCESS CASH
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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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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
A Sale Leaseback, when it comes to equipment financing loans can sometimes be a ' light bulb moment ' when it comes to the answer to a working capital and cash flow solution without taking on additional external debt.
Why is the equipment sale leaseback Canadian business financing strategy sometimes overlooked, and often underutilized? And, even better, how does it work? Let's dig in.
WHY CONSIDER THIS METHOD OF FINANCING?
The sale-leaseback has been around a long time. It typically is used for refinancing of fixed assets and in some cases real estate.In both of those cases, the same principles apply. And more often than not it’s a way to improve profits and utilized assets that otherwise are only sitting on the balance sheet.
MATCHING THE TERM OF THE LEASEBACK WITH THE USEFUL LIFE OF THE ASSET IS KEY
The key to a sale leaseback transaction is to understand some of the basic accounting rules around the transaction. As importantly it's also key to ensure you pick the right ' amortization' or ' term’ for the lease or bridge loan that will finalize your transaction...
A quick example of things going wrong? Let's say your company wishes to do a lease back on your technology assets. It's a solid strategy employed by many. However, tech assets depreciate and become obsolescent faster than many other assets, so refinancing them and picking an amortization of, for example, 5 years doesn't make a lot of sense.
Simply because you will still be making payments on assets that probably need to be upgraded and changed while your firm is still looking into a sale-leaseback refinancing payment. So understanding what we call the ' useful life' of the asset is key to a business owner/financial manager’s success in this type of refinancing.
UNDERSTANDING ASSET VALUATION AND THE COSTS AND BENEFITS OF REFINANCING
Generally, the equipment finance lease you enter into in this type of transaction should have some common sense attached to it. You need to understand the value of the asset, the costs involved in the refinancing, and some of the accounting and tax benefits and other issues involved in such a transaction.
CASH FLOW TO THE BALANCE SHEET!
The key benefit of sale and leaseback financing is that it solidifies your refinancing with the cash it will bring to your balance sheet. You also need to convey to the lessor/lender what the proceeds of the refinancing will be used for, as you do not want it to be viewed as a ' cash grab' for all the wrong reasons.
HOW DO SALE LEASEBACKS WORK?
Have we covered off how the sale leaseback works? In its essence, it couldn’t be simpler. Assets you already own that are not encumbered, i.e. they are lien-free, are sold back to your lessor/ finance firm. The title transfers to the lender and passes back to your company once payments are completed under your leaseback.
CONSIDER AN APPRAISAL IF REQUIRED
In almost all cases some sort of ' appraisal’ value needs to be tied to the deal - both you and the lender benefit from knowing the transaction makes sense re the asset values. And almost all assets can be refinancing via bridge loans, leasebacks. Rates will always be commensurate with overall company credit and asset quality.
CONCLUSION
Sale leasebacks are a fast and efficient way to use owned assets in a strategy to improve your cash and working capital. Any time of asset can be refinanced - equipment, machinery, rolling stock, and of course real estate. The concept is simple to understand - the paper sale of the asset to a third party finance company with the lease agreement specifying return of ownership to your firm at the end of the transaction. Monthly payments are typically structured very specifically to your unique situation based on overall credit risk, collateral value, etc.
Numerous benefits including an improved balance sheet are a key part of this type of financing - funds are typically used for restricting, growing, or simple working capital needs.
Consider leasebacks when you're looking for an alternative financing strategy to unlock the capital in asses you own already while maintaining use of those assets.
If you want to investigate the ' light bulb moment' around the benefits of sale leasebacks and equipment refinancing loans for business owners seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in ensuring you have not overlooked this great refinancing strategy to enhance cash flow.
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Stan Prokop
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