Could The Sale Leaseback Be Your Company’s Light bulb Moment?

OVERVIEW – Information on why equipment financing loans or a lease via a sale leaseback strategy is one of the most overlooked business refinancing strategies

A Sale Leasekback , 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 this Canadian business financing strategy sometimes overlooked, and often under utilized? And, even better, how does it work? Let’s dig in.

The sale lease back has been around a long time. It typically is used for either 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.

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 doesnt 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 locking 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.

Generally the lease or loan 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 issues involved in such a deal.
The key benefit of equipment financing loans or a lease that solidifies your refinancing is 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.

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 lease back.

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.

If you want to investigate the ‘ light bulb moment’ around the benefits of equipment refinancing loans 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.

Author: Stan Prokop – founder of 7 Park Avenue Financial

Originating business financing for Canadian companies, specializing in working capital, cash flow, and asset based financing. In business 10 years – has completed in excess of $90 Million of financing for Canadian corporations. Core competencies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
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7 Park Avenue Financial
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7 Park Avenue Financial
Canadian Business Financing