OVERVIEW – Information on lease back financing in Canada . Exploring the majoring benefits of a successful sale leaseback transaction as part of your cash flow strategy.
Lease back financing in Canada has been around for decades – it’s a proven strategy to obtain financing for your firm on assets you already own. The sale leaseback transaction allows your company to still use the asset (typically equipment or real estate) while buying it back over the term of the lease. We’re examining those proven benefits. Let’s dig in.
The main driver for business owners/mgrs to utilize this form of financing is the need to free up capital for use in the business – simple as that. Depending on the way you use the capital there is typically an improved balance sheet when it comes to some of the ratios that banks and other commercial lenders like to see.
Also, since you temporarily don’t own the asset you don’t have that additional depreciation expense. When the funds from the transaction are used to increase sales it’s a true ‘ double whammy’!
What are some of the issues then in properly executing the lease back?
The need to properly assess the true current value of the equipment – this benefits both you and of course the lender and is often achieved via a third party appraisal . In our experience our clients often feel the asset in question has more value!!
The requirement to ensure that the interest rate and cash outflow on your lease payment makes sense from a cash flow perspective to your business – Here picking the right amortization ( lease term ) is key
The actual final buyback payment must be negotiated fairly
For larger transactions it might well be considered to discuss the transaction with your lawyer and or accountant. In the SME COMMERCIAL FINANCE sector personal guarantees of owners on the transaction may well apply.
Let’s recap, with a total of 7 solid benefits of lease back financing.
1. Equity in your business is freed up so that owners and or creditors can make maximum use of capital
2. The company can still use the asset/assets in question
3. Capital from a sale leaseback transaction can be used to achieve and even greater return on equity
4. Debt your company currently has can be paid down or in some cases eliminated – capital could also be used to purchase new assets
5. If the leaseback transaction involves real estate your business is simply addressing capital through its core business – you’re probably not in the real estate business
6. In certain circumstances your company can maximize efficiency in times of low interest rates for refinancing
7. Numerous tax/accounting/financial statement benefits can accrue from properly executed leaseback financing
These transactions work best when they are balanced in terms of the needs of the lender, and your firm, the borrower. Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can help you complete a transaction that makes sense for your firm.
7 Park Avenue Financial :
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 . Info /Contact :
7 Park Avenue FinancialSouth Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
‘ Canadian Business Financing With The Intelligent Use Of Experience ‘
ABOUT THE AUTHORStan 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.
7 Park Avenue Financial
Canadian Business Financing