Sale Leaseback In Canada: Truth And Consequences Around The Equipment Leasing Company Reverse Solution

5 Reasons To Consider A Sale LeaseBack In Canada

OVERVIEW – Information on the sale leaseback in Canada. How does the equipment leasing company or commercial lender provide such a solution and what are the benefits?




A Sale Leaseback financing strategy is one of the more unique methods of replenishing your capital and cash flow. Let's examine the truth and consequences

of this business finance strategy, as well as some important considerations. Let's dig in.

Not all Canadian business owners and financial managers are aware of this somewhat unique strategy. At it's essence it's very simple. You are taking an asset you own and in effect ' selling' it back to the Lease Company or commercial finance firm. That entity then ' leases' it back to you via one of three finance vehicles:

Capital Lease
Loan/Bridge Loan
Operating Lease

What then are the 5 reasons that the business owner/manager rationalizes to consider such a transaction. They are as follows:

1. A need for working capital

2. A quicker way to raise cash as opposed to taking on new debt or considering additional equity

3.The unique need to both still use the asset in question as well as to maximize its value to your firm

4. To manage certain debt/equity relationships on your balance sheet

5. Maximizing your ' R O A ‘- (return on assets)


As we noted our described financing has both some consequences and considerations. Naturally the equipment leasing company or commercial finance firm must properly document the transaction from a legal and contract perspective. That's actually a fairly simple matter.

But one other consideration is the accounting treatment of your transaction, often overlooked in the early stages of the owner/managers consideration of a leaseback. You need to discuss, and consider the balance sheet and income statement effects of treating the lease back as either a capital lease or an operating lease.

For example, it might be recommended that you do an ' operating lease ' - in that case your income statement needs to reflect either the gain or loss on the value of the asset or assets in question. (Yes Virginia, some assets actually increase in value on occasion). Company owned real estate is a good example. More often than not we recommend Capital (lease to own) Leasing strategies when implementing a sale leaseback, if only because the accounting, tax and cash flow reporting consequences seem to be a bit straight forward.

We haven’t mentioned your firms ' CASH FLOW STATEMENT ' when it comes to a sale leaseback, but typically your accountant will recommend (or insist!) that your cash flow statement show the leaseback as a Financing inflow on your financials.

People are always going to have ' questions ' and ' issues' with a sale leaseback.

This is everything from a lender viewing it negatively as a cash grab, your accountant raising tax , balance sheet and reporting issues, etc. Nonetheless it’s a proven and often used financing strategy to enhance cash flow while keeping an asset you want to keep, or need for that matter.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in the ' truth or consequences' aspect of Sale leaseback financing.



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 Financing Expertise

Stan Prokop