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Sale Leaseback Financing Lessons That Will Pay Off
Sale leaseback financing provides many advantages to Canadian business owners . While at the same time selling equipment or other assets ( for example real estate ) to a third party you are effectively agreeing to use and repurchase the asset .
The goal ? Simply unlocking and cash flowing the equity you have in the asset . Naturally every company has a different situation for evaluating the reasons to perform a sale leas back financing .
Cash flowing the asset through this financing process allows your company in effect to extract equity - and almost always that equity and potential cash flow infusion is significant, which is one of the reasons your firm is considering the financing .
Generally speaking a typical loan to value amount under the financing process can unlock up to 100 % of the assets value. Naturally in traditional finance scenarios the typical loan to value would be 75%.
Balance sheet implications also come about under the leasing back of assets, and the good news is that in the majority of situations those implications are positive. Your accountant will explain to you that issues such as depreciation can positively impact your financing statements in the sale leaseback process.
While ' off balance sheet financing ' is no longer in vogue for a couple of reasons the selling and refinancing of assets is a positive mechanism to cash flow success. Typically those all important ratios and covenants that revolve around debt to equity positively impact company financial statements. Anytime you remove debt from the balance sheet tends to be a good thing we are told !
Business these days seems to move at lightening speed and even the largest firms in Canada will consider the leasing back of assets as a move to improve liquidity . Any finance mechanism that improves financial statements and generates cash at the same time is a welcome Canadian business financing solution .
Let's back track to understand clearly how the transaction works . The process is quite simple - your firm owns the asset, you sell it to the lessor and lease it back. You have just converted a fixed asset to cash!
Crucial Tactics for Sale Leaseback Financing
Typically it protects both the lender and you the borrower to ensure you have a proper appraisal of the asset in question - again that's typically equipment or real estate. It is critical to mention that that there can be no liens and encumbrances on the asset .
While many firms employ lease back finance as a cash flow strategy it can also be used as a strategic option . Canadian banks sold many of their prestigious bank towers as they realized the benefits of using that capital to grow the bank.
It is safe to say that many firms unfortunately find themselves in a cash crunch and as such that is also a key reason to entertain this method of asset refinancing.
Typical asset categories in the equipment area involve construction , mfg, and rolling stock assets Companies in cash crunches use the cash to mend their working capital and debt situations . Many firms find themselves in seasonal cash crunches which must be addressed. Remember one of the golden rules of finance, which is to use assets that appreciate, while financing those that do not!
Keep the leaseback finance strategy in mind as an additional tool kit in your business finance arsenal .
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with business refinancing solutions .
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Click Here For 7 PARK AVENUE FINANCIAL website !
7 Park Avenue Financial provides value added financing consultation for small and medium sized businesses in the area of cash flow , working capital , and debt financing .
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.
Stan Prokop
