What Is a Sale-Leaseback, and Why Would I Want One?
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Once in awhile on this blog, we address often asked questions about our most popular funding alternatives so you can get a better understanding of the many services available to you and the benefits of each.

This month, we're focusing on the sale-leaseback, which is a funding option numerous services might have an interest in today considering the existing state of the economy.

What Is a Sale-Leaseback?

A sale-leaseback is a distinct kind of equipment financing. In a sale-leaseback, often called a sale-and-leaseback, you can sell a possession you own to a renting business or loan provider and after that rent it back from them. This is how sale-leasebacks typically operate in business property, where companies often utilize them to maximize capital that's connected up in a realty investment.

In property sale-leasebacks, the funding partner typically produces a triple net lease (which is a lease that requires the renter to pay residential or commercial property expenses) for the business that simply offered the residential or commercial property. The funding partner ends up being the proprietor and collects rent payments from the former residential or commercial property owner, who is now the occupant.

However, equipment sale-leasebacks are more versatile. In a devices sale-leaseback, you can pledge the asset as security and obtain the funds through a $1 buyout lease or equipment financing arrangement. Depending upon the type of transaction that fits your requirements, the resulting lease could be an operating lease or a capital lease

Although property companies regularly use sale-leasebacks, company owners in numerous other industries may not understand about this funding choice. However, you can do a sale-leaseback transaction with all sorts of possessions, consisting of business devices like construction equipment, farm equipment, production and storage assets, energy services, and more.

Why Would I Want a Sale-Leaseback?

Why would you desire to rent a tool you already own? The main reason is money flow. When your business needs working capital immediately, a sale-leaseback arrangement lets you get both the money you need to run and the devices you require to get work done.

So, let's state your company does not have a credit line (LOC), or you require more working capital than your LOC can provide. In that case, you can utilize a sale-leaseback to raise capital so you can kick off a brand-new line of product, buy out a partner, or get prepared for the season in a seasonal company, to name a few reasons.

How Do Equipment Sale-Leasebacks Work?

There are lots of various ways to structure sale-leaseback deals. If you deal with an independent funding partner, they should have the ability to develop a service that's tailored to your business and helps you achieve your short-term and long-term objectives.

After you sell the devices to your financing partner, you'll participate in a lease agreement and make payments for a time period (lease term) that you both concur on. At this time, you end up being the lessee (the party that spends for making use of the property), and your funding partner ends up being the lessor (the celebration that gets payments).

Sale-leasebacks normally involve repaired lease payments and tend to have longer terms than many other types of funding. Whether the sale-leaseback appears as a loan on your business's balance sheet depends on whether the deal was structured as an operating lease (it will not appear) or capital lease (it will).

The significant difference in between a credit line (LOC) and a sale-leaseback is that an LOC is generally secured by short-term properties, such as accounts receivable and inventory, and the rates of interest modifications over time. A service will draw on an LOC as needed to support current cash flow requirements.

Meanwhile, sale-leasebacks usually include a set term and a fixed rate. So, in a common sale-leaseback, your company would get a swelling sum of money at the closing and then pay it back in month-to-month installments in time.

RELATED: Business Health: How Equipment Financing Can Help Your Capital

Just How Much Financing Will I Get?

How much cash you receive for the sale of the devices depends on the devices, the monetary strength of your service, and your financing partner. It's common for an equipment sale-leaseback to provide in between 50-100 percent of the equipment's auction worth in cash, however that figure might change based on a vast array of elements. There's no one-size-fits-all guideline we can offer