A sale-leaseback is a financial arrangement where companies sell one of their real estate assets to an institutional lender. As per conditions of this loan scheme, this financier leases the asset back to their corporate enterprises. They can then continue to occupy and use the asset to generate revenue for their businesses. Moreover, companies can
- Significantly minimize their overall investments in the fixed assets like land and buildings,
- Claim the lease-payments to the corporate financer as business expenses for tax purposes,
- Strengthen their cash flow position, and
- Obtain enough cash for their expansion needs in return for entering into a long-term lease.
Sertant Capital – How does a sale-leaseback scheme work?
Sertant Capital is a popular lending company from Newport Beach, California, specializing in commercial equipment financing. It provides flexible and diverse capital solutions to small businesses with varying credit profiles throughout America. These schemes include sale-leaseback arrangements, TRAC leases, off-balance-sheet financing, refinancing options, and step up/down payments. The company even deals in progress payments, capital, First Amendment, and tax leases. Its specialists use their expertise to help further their clients overcome their cash flow issues and expand their businesses. Due to their efforts, many of these corporate enterprises are doing well in the market.
The specialists of this lending company say companies should have a clear understanding of how sale-leaseback arrangements work. Only then can they decide on whether this loan scheme is suitable for them. They point out that it consists of the following two contracts:
- An agreement where the companies sell the real estate asset to a corporate lender for a fixed price, and
- Another agreement stating the lender becoming the landlord of the property but leases it back to the company
This arrangement enables companies’ to continue to use the asset for their business operations for generating revenue. However, they cease to own the asset by transferring its title deed to their corporate lender. The financier can, in turn, expect cash revenue from the asset in the form of lease payments. This reduces the risk it incurs by paying the companies the price they ask for acquiring the asset. It is a win-win situation for both parties.
Justifications for entering into sale-leaseback arrangements
Companies might enter into a sale-leaseback arrangement with a suitable corporate lender for the following reasons:
- This financial scheme enables them to free-up cash resources they tie-up in the real estate asset,
- They can acquire necessary funds to strengthen their cash flow position without incurring new debt,
- They can enter into a capital lease arrangement with the lender to continue using the asset to generate revenue,
- They do not have to disclose the asset and its corresponding liability in their financial statements, and
- The lease payments are generally lower than the interest charges they likely to incur by taking a loan.
The team of professionals at Sertant Capital concludes by saying entering into a sale-leaseback arrangement enables companies to improve their finances. They can strengthen their cash flow position by releasing cash they tie-up against a real estate asset. Under the scheme, they can still occupy and use the asset to generate revenue. This helps them to expand their existing commercial operations in the market with success.