Many business owners and financial managers are often faced with the consideration of utilizing a sale – leaseback to generate cash. This strategy became much more popular over the last year or so as banking and credit liquidity scenarios deteriorated.
The overall strategy can be viewed as giving some operational flexibility to the business. The bottom line of course is that it brings additional cash into the company at a time when ash is king. The customer is of course, essentially ‘tapping into equity ‘that the firm has built up in the asset. What is that asset?
Typically assets given up for consideration in sale leasebacks are manufacturing equipment, computers, and even a firm’s real estate.
Sale-leasebacks have to make sense to both the lessor and the lessee. We view the largest ‘ negative ‘ aspect to such a transaction being the potential perception by the lessor, or other lenders that the firm is making a last ditch ‘ cash grab ‘. There has to be, as referenced above, an agreement that the transaction works for both parties.
If we analyze a typical example of a transaction we will hopefully get a better sense of why this strategy can in fact be a common sense financing alternative. Company A has manufacturing assets, shown as fixed assets on the balance sheet. In the sale – leaseback scenario the assets of course remain at the company – they do not move. The company receives cash for the sale of the asset to the lease firm. Quite frankly customers who consider this transaction have explored other traditional options by this time, such as reviewing additional financing with their bank or other senior lenders. Naturally the equipment is used on a daily basis to continue to generate sales, (and hopefully profits) for the firm.
In certain instances the sale-leaseback can in fact enhance the customer’s balance sheet. One additional major flexibility is that the new sale-leaseback financing can in fact be used to generate additional flexibility at the end of the lease – i.e. the customer can again regain ownership of the asset if it will have economic value, or might choose to negotiate a return of upgrade with the vendor or lessor.
In summary, does a sale-leaseback of assets make sense? The answer as we have seen is ‘ yes ‘ if in fact it is done for the right reasons and makes sense for the customer and the lender.
Stan Prokop is founder of 7 Park Avenue Financial – http://www.7parkavenuefinancial.com The company originates business financing for Canadian companies,specializing in working capital, cash flow, and asset based financing. In business 6 years the company has completed in excess of 45 Million $ of financing for companies of all size.
For info on Canadian business financing and contact details see:
7 Park Avenue Financial : South Sheridan Executive Centre
2910 South Sheridan Way
Direct Line = 905 302 4171
Office = 905 829 2653
Email = email@example.com
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 – Completed in excess of 100 Million $ of financing for Canadian corporations .
‘ Canadian Business Financing With The Intelligent Use Of Experience ‘
ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Article Source: http://EzineArticles.com/expert/Stan_Prokop/432698 7 Park Avenue Financial
Canadian Business Financing