Is It Advisable To Consider Sale-leaseback Financing?
- Date: 2010-01-12 - Word Count: 395
Share This!
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 .
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 .
Related Tags: leasing, equipment financing, sale - leaseback
Your Article Search Directory : Find in Articles
Recent articles in this category:
- Equipment Leasing- Benefits And Pitfalls
Talk of business growth and profits, the two most essential elements that come into picture are equi - Buy A Car Or Lease A Car?
It's the classic dilemma that faces every auto-consumer out there: Pay cash upfront or forgo the own - Essential Information For Equipment Leasing And Finance
Are you planning for to get equipment finance for your business?This article presents essential info - The History Of Roops Mill
The Spa at Roop's Mill is the only full service private day spa in Carroll County. It is located in - Lease Agreement Forms: Is Your Rental Lease Agreement Airtight?
Lease agreement forms are the heart and soul of every tenancy - They decide the rules of your lease - Leasing Retail Space - Location Facilities And Future Development
Parking Research whether the retail space you are considering has adequate parking. Consider both th - Live In The Lap Of Luxury With Luxury Car Leasing
Many businesses and corporate persons opt for car leasing and used car leasing when deciding on an a - Equipment Leasing - Information About How To Use It For Funding Resources For Your Firm
If you're interested in equipment leasing agreements then it should not be tough to source an applic - Your Most Important Negotiation
No single element has to be more right than your rent. Getting locked into an expensive lease straps - Learn All About Leasing A New Car
Whether you lease a car to get into the latest models or have better purchasing flexibility, getting
Most viewed articles in this category:
- Commerce Michigan Real Estate: Buy A Home On A Lease Option And Stop Wasting Money On Rent
Many Commerce Michigan real estate owners and wanna be homeowners are facing real problems. The num - Fractional Ownership And Flexible Renting - Second Homes With A Social Conscience
Many people who consider buying a second home (or vacation home) face a dilemma. Even if you can a - How To Qualify For An Equipment Lease
Unless you are a large corporation, you will have to personally guarantee your lease and your credit - Using A European Lease To Purchase A Boat
If there is a single concept which has revolutionized the car industry in recent years, it is the id - Mastering the Art of Lease or Rental Agreement
Before mastering the art of lease or rental agreement, one has to understand the basics of it. A lea - Lease Options: Turning Renters to Partners
Lease options which turn renters into partners is a means for people who cannot afford a huge down p - Investing In Las Vegas
Las Vegas is a famous tourist spot. It is all the more famous and popular for legalized gambling in - What To Do If Your Tenant Goes Into Rent Arrears
Although you might have some great tenants in your property, there is no way to predict whether or n - Finding an Office Space in Manhattan
Finding an office space in Manhattan seems like a very hard task, and as everything else in the real - Learn About The Lease with Option to Purchase agreement for Michigan
A lease with option to purchase agreement for Michigan is becoming widely sought after as slack hous