Sale Leasebacks :Get The Most From Your Lease Finance Company
Information on the sale leaseback strategy as a solid mechanism to generate working capital or as part of a refinance strategy
Canadian business owners and financial managers, as owners of certain asset classes, have the ability to enter into a sale lease back scenario. It couldn't be more basic - you sell the asset to a buyer, typical a finance firm and that firm immediately becomes the lender or lessor of your transaction. And that asset is of course still there!
The two key elements that are happening should be quite clear - you have received cash flow and working capital for your firm on an asset that was unencumbered, and at the same time you are still ( hopefully !) using the asset to generate profit and operational capabilities for your firm .
In essence you're getting capital and cash flow from an asset that was otherwise non-performing. It's important to point out that your balance sheet still stays intact from a viewpoint of leverage, and in certain cases can actually improve.
It should go without saying that the financing can be a combination of one asset, or even different asset classes. For instance you could do a sale leaseback on your premises and the equipment if you are a manufacturing firm in Canada.
We referenced earlier the ' evolution' of the sale leaseback. In recent years a lease finance company was somewhat more reluctant to enter into such a transaction; if we could be blunt and straightforward (that’s our style!) transactions of this type were viewed as a ' cash grab' by firms who had some significant challenges. Bottom line it wasn't readily apparent the transaction made sense... for the lease finance company or other lender!
We like to view the transaction as simply one additional tool kit in the business owner’s pouch of financing or re-financing alternatives. If your firm is expanding, or is in a position of having to repay or arrange some other business debt then the transaction might make significant sense. Other times the new capital simply can make your business either grow or be more efficient.
Another way of looking at it is from the viewpoint of your core competencies - do you in effect necessarily want or need to be an owner of certain assets. just for the sake of ownership.
Naturally it's critical to determine the amount of capital you can extract from such a transaction. Business owners should ensure, either on their own or through an advisor, that they have a solid understanding of the current market value of the asset. However, if truth were to be told (again, that’s our style!) You will probably be required to get an appraisal done at your own cost at the request of the lease finance company or other lender.
Appraisals themselves have many nuances, and this is simply one more solid reason to ensure you have some solid advice in this area. Lenders or lessors focus on the liquidation value of the asset in a ' worst case' scenario. Business owners tend to view the asset in terms of its value today and in the business in the future. There is often a large difference between those two points of view!
The sale leaseback can also often enhance your operating ratios such as debt to equity, etc You definitely want to be in a position to understand the effect of the transaction from an accounting viewpoint, as well as ensuring you have the permission from any other ' secured lender' to complete the transaction properly .
When working capital, cash flow, growth, or balance sheet issues force you to consider alternative methods of raising capital don't forget those ' treasures in the barn ' - i.e. the assets you have in your firm that you own already.
Speak to a trusted, credible and experienced Canadian business financing advisor on how the sale lease back transaction has evolved into a solid business financing tool your firm can use today.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.