Wednesday, September 18, 2013

Benefits Of A Sale Leaseback Strategy In Canada. How A Bridge Loan Or Asset Finance Lease Back Works






Deconstructing The Sale Leaseback Solution In Canada


OVERVIEW – Information on the sale leaseback strategy . How does an asset lease back work and why does this type of lease or bridge loan benefit the business owner





A Sale leaseback strategy, if executed properly, is a classic refinancing scenario. How does the lease back work, and whether it’s a bridge loan or finance lease what are the key benefits and mechanics of this financing solution. Let's dig in.

Sale leasebacks are typically utilized when a firm such as yours is looking to generate cash flow and working capital from unencumbered assets. These assets on the balance sheet can be almost any type of tangible asset - that might include trucks / vehicles, real estate, technology, shop floor equipment etc. They still have operating value to the firm.

The legalities of the transaction are simply. As the owner of the asset your firm simply sells it back to a leasing company. That creates a lease financing (or in some cases a bridge loan) which not makes your company the lessee or borrower in the transaction.

Naturally the key benefit of the deal is your ability to generate cash from the deal, while at the same time using the asset to hopefully generate profits and operational efficiencies within your firm.

A key factor in the whole transaction is of course the value of the asset. As we've experienced over the year’s business owners tend to place a higher value on the asset or assets in question as opposed to the lender! So how then is this problem or challenge addressed?

Typically the answer is a third party appraisal. It's very rare that larger sale leasebacks are consummated without and appraisal. In years gone by lenders were skeptical of this method of refinancing simply because they viewed it as a ' cash grab ' by the customer. These days, when properly structured and valued it’s a solid mechanism of refinancing that more often than not makes a lot of sense.

A common mistake many business owners and financial managers make is to solicit an appraisal on their own. That problem complicates two main things -

Lenders like their own appraisers, not yours!

Dollars can be spent on the wrong type of appraisal (there are three types)


Obviously the best solution is when you and your lessor or lender agrees on who will be performing the appraisal, and what type is mandated. The three types of appraisals include

FAIR MARKET VALUE
ORDERLY LIQUIDIATION
FORCED VALUE LIQUIDATION

Lenders and lessors will more often than not ' go conservative ' on the asset and focus on the dollar value of the orderly and FLV asset liquidation prices. Because most (not all) lessors and lenders don't have significant asset expertise in diverse industries they want to know they can disposed of an asset quickly in a worst case scenario. That worst case is of course a business failure.

It's important to note that a lease back or bridge loan has some tax and accounting implications, so they should be reviewed with your accountant. In some cases book values of assets will come into accounting play.

There are two types of leases in Canada - capital and operating. Operating leases are less in vogue these days due to international accounting standards being re written .So most often the sale leaseback / bridge loan is constructed as a full payout capital lease with fixed interest rates and monthly payments . The bottom line is still the same - new cash on your balance sheet.

In a small number of cases equipment already under lease can be refinanced also, although this is not really a classic leaseback... it’s just a refinancing of an unencumbered asset. In some cases an alternative to the lease back is to simply pledge the asset or asset in question under another type of financing arrangement.

Our bottom line? Let this method of refinancing existing assets make sense for your firm when the planets align relative to asset value, cash needs, and accounting sense. Seek out and speak to a trusted credible and experienced Canadian business financing advisor who can assist you with your refinancing needs.







Stan Prokop - founder of 7 Park Avenue Financial
http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.

Info re: Canadian business financing & contact details :



7 Park Avenue Financial = Sale Leaseback And Bridge Loan Financing Expertise




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7 Park Avenue Financial


South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com





































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