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Just The Good Stuff On Sale Leaseback Cash Flow Strategy
Information on sale leaseback financing in Canada. The lease back strategy via a asset collateralized bridge loan is an often effective cash flow strategy - here is how and why
Sale leaseback financing , we think, is very much a ' top shelf' cash flow financing strategy often overlooked by Canadian business owners/financial mgrs. Knowing you have unencumbered assets that can also generate additional working capital for your business via a lease back bridge loan is a very powerful tool. Let's dig in.
Being asset rich... and cash poor is a sometimes common feeling among many Canadian business owners and financial managers. Knowing how to channel these assets into working capital can often make sense for a variety of reasons. Since the 2008 recession the ability to know about and source every funding strategy for your business is a ' must know '.
How can your firm free up the cash flow and working capital in these assets and put those funds to work for sales and profit generation? Refinancing these assets, or any asset via a lease or bridge loan (both strategies work) is the answer!
In some cases if you owe money on the equipment those payments can be stretched out to lower amounts, and at the same time improve working capital and liquidity.
Is it difficult to engineer a sale leaseback financing. The answer is categorically ' NO ‘if you employ a trusted, credible and experienced advisor in lease/loan financing in Canada.
The one caveat that we warn clients on is that the sale leaseback should not be greater than the book value on your financial statements of the asset being financed. If in fact that value was greater you would incur a tax on the financing which might negate the positive aspects of the sale leaseback.
So how do you get your sale leaseback financing completed? In effect you are selling your equipment back to the finance or lease company - so you are required to prepare an invoice and a bill of sale. That invoice of course means that you are warranting that the equipment is free and clear of liens and that you have valid title to the asset.
Lenders protect themselves by simply registering their new financial interest in the asset/assets being refinanced.
There are a large number of assets that actually hold their value, sometimes increase in value, and in some circumstances only depreciate a modest amount. In that case we recommend to clients that they invest a nominal amount in an appraisal - this may well generate a larger amount of working capital and cash flow coming back into your firm.
Prudent customers will generate an appraisal known as a fair market value appraisal - unfortunately many lenders will focus on a liquidation value appraisal, which is of course much more conservative .
Are there different documents used in a sale leaseback transaction? No! They are the same lease type of documents that you would expect in any type of equipment financing/loan transaction.
Careful attention should also be paid the 'type 'of lease that you consider in such a transaction. You essentially have two choices in Canada regarding such a structure; they are capital leases and operating leases.
If you choose the former you have a stated intention to own the equipment again when all payments have been made; an operating lease signifies your intention to use the equipment, upgrade it, or return it at the end of term. Each of these two types of structures has different balance sheet and income statement effects.
In summary, sale leaseback financing allows you to generate working capital and cash flow from unencumbered assets. It can be done for any asset, including real estate by the way.
Stan Prokop - founder of 7 Park Avenue Financial –
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
' Canadian Business Financing with the intelligent use of experience '
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.
Stan Prokop
