A sale-leaseback is a common form of asset-backed financing for companies in need of cash. Under this lending model, they sell one of their assets to a financier for a reasonable price. It can be in the form of a property, building, commercial vehicle, expensive machinery, and equipment. The company then signs a contract with the financier to lease the asset for its operations. In return, the companies make monthly lease payments to the financier for a specific period.
Sertant Capital – How can companies improve their finances with sales-leaseback?
Sertant Capital is a leading equipment financing company in America, providing customized solutions to businesses. Its structured financing options suit the needs of both entrepreneurs and corporate enterprises irrespective of their creditworthiness. They do not go through a lengthy procedure to finalize lending agreements to get the necessary funds. Even its professionals give expert suggestions to their clients on how to increase revenue. The popular vendor programs of this company include:
- TRAC leases,
- Off-balance sheet financing,
- Tax lease,
- Progress payments,
- First Amendment lease, and
- Capital leases.
The financial experts from Sertant Capital state companies enter into sales-leaseback arrangements with a financier for the following reasons:
- To raise capital for their businesses without incurring debts,
- Eliminate all of the risks associated with owning assets,
- Strengthen their cash flow position,
- Boost business expansion,
- Continue to use the assets for business operations,
- Claim tax deductions by declaring the lease payments to be a business expense, and
- Have an option to re-purchase the assets from the financier at a later date.
What do financiers consider in the sales-leaseback arrangement?
The financiers offering sales-leaseback arrangements to companies look into the following aspects:
- The creditworthiness of the prospective borrowers,
- Overall market value, condition, and quality of the asset they are buying,
- Whether they will incur any development risks associated with the asset,
- Market reputation of the companies, and
- Whether the arrangement will yield a steady income.
How to maximize a sales-leaseback arrangement?
A company can maximize a sales-leaseback arrangement with their financiers in the following ways:
- Charge a high sale price for their asset when seeking a long lease period,
- Ensure the lease payments are inclusive of all taxes, insurance, and maintenance costs, and
- Calculate for lease payments on business metrics like the ratio of rent to sales.
The advantages of entering into a sale-leaseback arrangement for companies are as follows:
- Claim additional deductions to reduce their tax liability,
- Increase cash flow and working capital, and
- Get the necessary funds within a short period
The financial professionals from Sertant Capital conclude by saying entering a sales-leaseback arrangement allows companies to improve their financial position. They can raise the necessary capital to strengthen their cashflow position. Companies can even reduce their tax liability by claiming deductions on the lease payments. Moreover, they can still use the assets they sell to the financier for their businesses. This increases their business income without incurring the risk of owning them. However, they need to have a good market reputation and creditworthiness to avail of this asset-backed finance mode first to enjoy its benefits.