OVERVIEW – Information on sale leaseback finance benefits. Key elements of a proper lease back financing structure
A Sale and leaseback strategy is an often underutilized method of finance resolution for Canadian business. Knowing what some key issues are in lease back financing and how to address them is key to success in this area of finance. Let’s dig in.
The simplicity of leasebacks is just that. It’s a simple concept where you sell, and immediately lease-back the asset in question. The two logical asset categories are equipment and/or real estate. It works for both.
While you in effect give up temporary ownership of the asset the good news is that you still possess and use those assets. The actual valuation of the asset is absolutely critical to your success in this type of financing. The most common method of addressing this issue is a third party appraisal that is often mandated by the lessor/lender.
Once that lessor/lender determines that you own the asset outright (this is done through searches of public records) they will often mandate an appraisal via an appraiser they know and are comfortable with. We encourage all our clients not to undertake the appraisal/valuation process until the leasing company/commercial lender approves who that appraiser is. Bottom line – they have their favorites!
While business owners/managers tend to view the importance of this type of finance from a ‘ cash flow ‘ perspective it’s also important to address the balance sheet and tax issues that might arise. This is a great time to discuss the issue with your accountant.
One potential pitfall is that you want to know if the actual cash you receive is greater than the depreciated balance the asset shows on your financial statements. This is probably more applicable to real estate transactions where the incoming cash flow from the transaction might be greater than the amount showing as value on the balance sheet. Bottom line – this has the potential to generate an income tax obligation.
Why do Canadian businesses pursue lease back financing? Typically issues have arisen that create the need to source external cash. When additional commercial debt or owner equity cannot be raised enter the sale and leaseback solution! While it may sometimes be a more expensive way to raise cash it sometimes also might be the only way!
Key benefits of this type of finance strategy include the ability to deploy capital in another party of your business, or in some cases you can re-do your overall debt situation, which more often than not improves some of those balance sheet ratios.
In certain situations where no ‘ financial stress’ exists in the business owners choose to re-finance in this method in order to free up owner equity they have built up in the business. In the case of real estate many firms have realized (even our chartered banks by the way) that their real estate holdings are no longer ‘ core’ to their business.
If you’re looking to maximize on a foolproof formula for successful sale and leaseback financing seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your funding needs via this somewhat unique financial strategy not often considered by all.
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 FINANCIAL = CANADIAN SALE AND LEASEBACK FINANCING EXPERTISE
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 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.
7 Park Avenue Financial
Canadian Business Financing