Unlock Working Capital with Sale Leaseback: The Lease Back Bridge Loan For Business Needs

 

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YOUR COMPANY IS LOOKING FOR A SALE AND LEASEBACK SOLUTION!

Working Capital Woes? Sale-Leaseback Financing Can Bridge the Gap

You've arrived at the right address! Welcome to 7 Park Avenue Financial

Financing & Cash flow are the  biggest issues facing business today

ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?

CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

EMAIL - sprokop@7parkavenuefinancial.com

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

 

BRIDGING THE GAP WITH SALE-LEASEBACK FINANCING - UNLOCKING THE VALUE OF BUSINESS ASSETS

 

A Sale-leaseback strategy, if executed properly, is a classic refinancing scenario.  In this financing arrangement, a business sells an asset/assets and then leases it back - this provides valuable working capital that frees up the equity that was in the asset - This type of ' bridge loan' provides needed liquidity for the cash flow/business needs of the company via short terms loans that are strategically structured around immediate business needs.

 

A CREATIVE FINANCING SOLUTION FOR WORKING CAPITAL NEEDS

 

Leasebacks can be accomplished via business asset or real estate financing solutions for a property sale and leaseback lease financing or under various asset-based lending solutions in corporate financing In Canada.  Sale Leasebacks provide business liquidity without the company considering additional capital investment or debt financing as part of its financial planning for additional financial flexibility. The equity release in the refinanced asset is a solid alternative financing option for many businesses.

 

How does the lease back work as a finance source, and whether it’s a bridge loan or finance lease, what are the key benefits and mechanics of this financing solution when you might be at your borrowing limit?

 

 

WHY A LEASEBACK - EVALUATING THE PROS AND CONS OF BRIDGE LOAN 

 

 

It greatly appeals to small and middle market companies looking for business financing options, a financing rate, and lease terms that match their particular needs when they don't have access to more sophisticated capital markets and still want to keep the utility value of assets in question. In some cases, this type of transaction allows cash distribution to the owner/owners. Let's dig in.

 

 

WHY CONSIDER THIS TYPE OF FINANCING -  LEASEBACK BENEFITS FOR EXPANSION AND GROWTH

 

Sale leaseback transactions are typically utilized when a firm such as yours is looking to generate cash proceeds and working capital from unencumbered business assets and who at times are unable to access bank financing from business credit markets while giving you at the same time bargaining power regarding your assets.

 

These assets on the balance sheet can be almost any tangible asset, including trucks/vehicles, real estate assets, technology, shop floor equipment, etc.  In the case of real estate it's an alternative to mortgage financing. An owner-occupied real estate investment is a great investment to keep for the long term. They still have operating value to the firm. Proceeds of a company sales transaction bring value back to the balance sheet.

 

 

 

HOW DOES SALE LEASEBACK WORK? 

 

The legalities of the transaction are simple. As the owner of the asset, your firm 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 as part of a short-term or long-term lease agreement.

 

 

CASH GENERATION / MAXIMIZING LIQUIDITY 

 

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 at a time when all the bank credit you need is not available.

 

DETERMINING TRUE ASSET VALUE

 

A key factor in the whole transaction is, of course, the value of the asset. As we've experienced over the years 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?

 

POTENTIAL NEED FOR AN APPRAISAL

 

Typically the answer is a third party appraisal. Larger sale-leasebacks are rarely consummated without an 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 when it comes to a tailored lease payment to your cash flow via market lease rates, etc.

 

FINANCING ALTERNATIVES

 

Companies looking at financings such as a  mezzanine debt financing tool from alternative finance and mezzanine lenders will generally find that sale leaseback transactions are less costly and extension options deliver maximum flexibility in areas such as lease expiration.

 

  

THE IMPORTANCE AND VALUE OF APPRAISALS  

 

A common mistake many business owners and financial managers make is to solicit an appraisal on their own looking for greater value in the asset. 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 agree on who will be performing good due diligence efforts via the appraisal, and what type is mandated for a timely investment decision and an offer price acceptable to both parties. The three types of appraisals include

 

FAIR MARKET VALUE VIA MARKET RESEARCH

ORDERLY LIQUIDATION

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 be disposed of an asset quickly in a worst-case scenario, even a real estate asset.

 

That worst case is of course a business failure. Equipment proceeds and real estate proceeds can bring significant cash to the balance sheet via sale leaseback proceeds. In the real estate this scenario for property owners will be more expensive than mortage rates but less expensive than mezzanine finance - these days any basis points make a difference. 

  

 

  

DO YOU NEED A BUSINESS PLAN?

    

 

For certain transactions, it might be appropriate to have a business plan in place - particularly more significant transactions where your firm is trying to position the true value of a transaction. 7 Park Avenue Financial prepares business plans that meet and exceed bank and commercial lender expectations.

 

SALE AND LEASEBACK ADVANTAGES AND DISADVANTAGES

 

Sale-leaseback financing brings immediate benefit in the form of cash flow and working capital from the equity in business assets and or real estate. This short-term infusion of cash allows businesses with assets/equity ownership to maintain the use of the assets while gaining access to business capital. Due to the specialized nature of these financing options, sale-leasebacks come with various tailored terms and structures customized to the needs of the business borrower.  Assets that were originally financed at high-interest rates can be refinanced in a lower-rate environment.

 

It's important to note that a leaseback or bridge loan has some tax purposes and accounting implications, so generally, sale-leaseback accounting should be reviewed with your financial team or 3rd party accountant. In some cases tax savings and book values of assets will come into accounting play.  When it comes to financing rates the interest rate on your transaction will vary with transaction size and overall credit quality of your company and the asset/assets.

 

CAPITAL VERSUS OPERATING LEASES

 

There are two types of leases in Canada - capital and operating. Operating leases are less in vogue due to international accounting standards being rewritten. 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 the lease can be refinanced also, although this is not really a classic leaseback... it’s just refinancing an unencumbered asset such as real estate or equipment. 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, depending on overall credit strength.

 

  

CONCLUSION - UNLOCKING WORKING CAPITAL WITH SALE-LEASEBACK FINANCING

 

  

Our bottom line for the business owner looking to benefit from some asset company sale transaction?  Let this method of refinancing existing assets make sense for your firm when the planets align relative to asset value, cash needs, your growth objectives and accounting sense and as an alternative to mezzanine capital.

 

 

If you are forced to maximize liquidity with sale-leaseback financing arrangements, speak to 7 Park Avenue Financial,  a trusted, credible and experienced Canadian business financing advisor who can assist you with your refinancing needs - it's a great short-term solution to a long-term problem of capital structure and your company's balance sheet.

 

  

 FAQ: FREQUENTLY ASKED QUESTIONS / PEOPLE ALSO /ASK MORE INFORMATION   

 

What is sale-leaseback financing, and how does it work as a bridge loan for working capital?

 

Sale-leaseback bridge financing is a business financing solution whereby a company can sell business assets or property it owns and then enter into a leaseback transaction structured as a   term loan or lease; the equity in the asset allows the company to receive cash for short-term funding to cover operations or other business needs from appropriate bridge loan lenders or other alternative lenders.

 

 What are some of the risks associated with using sale-leaseback financing as a bridge loan for working capital?  

Business owners should consider any risk involved in sale-leaseback financing/bridge loans. In certain situations, the terms of a transaction can be regarded as onerous as it relates to interest rates and financing costs. Additionally, companies should consider the potential depreciation of the asset or assets being refinanced. A default in the leaseback arrangement could trigger business disruption and risk losing required assets. Bridging loans can be accessed much more quickly than financing from traditional financial institutions such as banks - Financing can also be used to retire government super priorities.

 

    

What is the main advantage of a bridge loan?   

 

 

 

The main benefit of bridge debt financing is that bridge loans typically can be accessed relatively quickly. Borrowers in some cases, may pay high-interest rates, but most bridge loan structures are typically short-term loan structures with some associated closing costs and an origination fee.  Typically a bridge loan is not a long-term financing solution - allowing the company instead to meet some urgent current expenses.

 

 Are bridge loans/leasebacks expensive? 

Bridging loans can be expensive as a typical leaseback/bridge loan might include an interest rate as well as an origination fee or closing fee - It is important to note that bridge finance solutions such as the leaseback are usually short-term financing solutions with a goal towards a long term financing permanent solution that might be more traditional. The rate of interest in a bridge loan lease solution might be either a monthly payment structure or; interest will accrue with no monthly payment or interest payments under a balloon loan type structure,

 

Click here for the business finance track record of 7 Park Avenue Financial

 

 

 

 

 

 

Two Unique Canadian Cash Flow Strategies

Canadian business owners and/or their financial managers might not necessarily be fully familiar with two sold financing strategies, the sale leaseback of assets, and the potential ability to enter into a securitization facility. Let's cover off some basics.

 

CONSIDER THESE ADDITIONAL IMPLICATIONS IN EVALUATING SALE LEASEBACCKS

 

When it comes to a  sale leaseback scenario there are some accounting, tax and financial statement issues that we also encourage clients to consider. It might be time to give your accountant a call!

 

WHY A SALE LEASEBACK

 

So when in fact does doing a sale leaseback make sense? Although it is often used when the company cannot obtain bank financing, that is not always the case and it's still a beneficial long term strategy when your company requires a capital infusion of some sort.

 

The interesting thing about this method of refinancing is that quite often the assets in questions are of value, and are not pledged to another lender. They belong to the company and can assist the company who is, as the expression goes ' asset rich ' but ' cash poor '.

 

WHAT ASSETS MIGHT BE CONSIDERED IN THE SALE LEASEBACK PROCESS

 

Typical assets that are used in a sale leaseback include phone and computer systems, manufacturing equipment, heavy construction machinery, rolling stock, real estate,  ... etc!

 

The strategy itself could not be more simple- your company sells the assets, or real estate,  to a leasing or finance firm in exchange for immediate working capital. The asset or assets in question are simply leased back to the business with the full intention of reacquiring the asset.

 

One area of caution is that complications can ensure when its time to confirm you have the ability to enter into a transaction such as this. Simply speaking, other creditors of your firm may be asked to confirm they hold no security in the collateral being refinanced... that just makes sense.

 

UNDERSTANDING THE TRUE VALUE OF YOUR ASSETS

 

Because different assets have different life cycles and value its important to get a firm understanding upfront as to the true total financing capability you can extract from this type of transaction.

 

Payments under a sale leaseback loan or lease are commensurate with your credit quality as well as the true liquidation value of the assets. That’s not how you might look at the transaction, but we assure you the lender does! It's all about the balance sheet!

 

WHAT IS SECURITIZATION

 

On to our other relatively unused and unknown financing,  ' SECURITIZATION '.  If your firm is over-leveraged or simply doesn’t have access to the liquidity you need.

 

In some ways securitization is a more complex type of sale leaseback - however, instead of financing your hard assets you are financing future cash flows that come from receivables, or what we can broadly call ' cash flow contracts '.  Oh, and by the way, larger public companies do this all day, every day as a way to enhance balance sheets.

 

Although some of the mechanics of a securitization might be viewed as complex by a small firm, medium-sized or larger firms simply collateralize those rights to collect in their A/R or contracts. They more often or note are responsible for any shortcomings in future collections.

 

Naturally for the securitization lender they are looking at both sides of the coin, the quality of your cash flows coming in, as well as the overall credit quality of your customer base. Here issues such as concentration, geography, type of asset, etc come into play for the final financing decision. Lenders can protect themselves even more by holding back some of the funds; in effect, they are over collateralized.

 

So, whether it’s a leaseback transaction of hard assets or securitization of cash flows your company might to well to investigate each method to see if it works for your firm.

 

CONCLUSION

 

More and more businesses in Canada, pandemic times included, are looking at commercial financing solutions such as the leaseback transactions to bring additional liquidity into the business. It is a complementary solution to existing credit facilities that might be in place such as senior lender credit lines, etc.

 

The ability to also potentially negotiate repayment under current cash flow circumstances is also appealing to business owners, as well as our aforementioned interest rate consideration.

 

While in some cases the consideration around a leaseback might be simply the current low-interest-rate environment, it more often than not is cash-flow considerations. The ability to use the assets in your business to evaluate cash flow options is simply additional financial flexibility in your capital structure goals.

 

Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in evaluating these great, and unique business financing mechanisms.

 

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

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 areas 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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

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 financing 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.


Click here for the business finance track record of 7 Park Avenue Financial







Stan Prokop
7 Park Avenue Financial/Copyright/2020

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Sale leaseback financing is an often underutilized part of the Canadian Equipment and Leasing industry. Many business owners and financial managers in Canadian firms may not yet be aware of the wide popularity and increasing use of this type of alternative financing facility.



For various economic and financial reporting considerations, this finance strategy continues to be scrutinized as a financial option for Canadian business. Let's dig in.

WHAT IS A SALE AND LEASEBACK?

Sale and leaseback financing is a process whereby your firm can sell an asset and lease it back from a financial firm, typically a leasing company , the ' lessor ' ,as it pertains to equipment, or a mortgage firm of some type if it pertains to real estate,( sale lease-back commercial real estate ) such as owner owned premises. At the time you negotiate such financing you have the ability to set out terms of repayment, typically the term of the transaction and payment schedule. As a seller of the asset your firm effectively becomes a lessee with the financial firm becoming of course the ' lessor '.

SHOULD YOU CONSIDER A SALE LEASE BACK

Companies that are capital intensive via investments in fixed assets, equipment, or real estate and ROLLING STOCK are typically great candidates for leaseback financing. The ability to recoup some of the cash in past investments, in times of need is the common reason for considering this type of financing. When a company looks to avoid external financing leasing back owner owned assets makes a lot of sense - especially if there is a consideration for the debt to equity ratio of a company.

Although the transaction does, in fact, show up as debt on the balance sheet that debt goes down with each installment and the company has an offsetting infusion based on the cash received in teh transaction. The process can sometimes be confusing to owners as it is really a combination of sorts of both debt and equity financing by virtue of the cash received.

EXAMPLE OF AN EQUIPMENT SALE LEASEBACK DEAL

Let us assume a transportation/trucking firm has a significant investment in its truck fleet. At the start of the transaction, the trucks are unencumbered with liens by virtues of the ownership of the assets. The trucking firm sells the trucks to the commercial leasing company at an agreed-upon fair price which in some cases can actually be higher than the accounting ' BOOK VALUE ' of the trucks. The proceeds of the transaction typically used for any general corporate purpose, for which there might be a number of reasons.

This financing transaction works well when your firm has the ability to pay back the installments on the transaction and the commercial lender has a comfort level around your financial statements and the understanding that the transaction has a long term benefit to your firm. The borrower must be able to prove proof of ownership of the asset or assets in question and its important to allow for time to close the transaction given that it has a bit more complexity and paperwork than a traditional lease financing transaction.

KEY BENEFITS OF A LEASEBACK TRANSACTION

1. This is an accepted way of raising capital that has a couple key benefits :

2. The company has the right to still use the asset for its original purpose

3. Your firm receives a cash injection based on the amount of the transaction and can preserve existing credit lines or loans with other lenders, allowing your company to maximize cash flow drawdowns


4. It removes the potential requirement of the firm to raise additional equity capital which would dilute ownership holdings - Some experts have compared the transaction, however simplistic, to a pawn shop transaction, whereby the owner has an asset/assets and requires temporary cash. The difference in that transaction though is that the seller in a leaseback is committed to regaining title and ownership of the asset!

5. Financing rates are competitive with general market conditions and your overall ' credit profile '

6. While traditional EQUIPMENT LEASE FINANCING solutions might require a down payment on the transaction leasing back an asset typically does not require a downpayment, sometimes called ' the downstroke '!

7. With business interest rates being at all-time lows for the foreseeable future companies have the ability to take advantage of those low rates

8. Balance sheet improvement - allows the company to reduce fixed assets and increase ' cash on hand '





The overall sale leaseback strategy has been around for a very long time, and, as noted, continues to gain in popularity. The primary reasons for its increasing usage are the ability of business owners to enhance their profits to a certain degree, as well as, even more importantly, to generate additional cash flow for the business. That is the key benefit of the latter would appear to be the most obvious benefit.



Business people continually look for 'creative' solutions to financial and cash flow challenges. Who wouldn't want that? Luckily these days more and more alternative solutions to cash flow needs are around.



The basic strategy? It's simple. Your firm has equipment that has been fully paid for and is currently unencumbered collateral. Your interests are simply that you wish to take advantage of the equity in the equipment, but at the same time you wish to continue to use the asset.

LESSOR APPROVAL CHARACTERISTICS

At 7 Park Avenue Financial we talk to clients about 3 key issues in ensuring faster approval.

1. The ability to demonstrate clear ownership of the asset, free from encumbrances

2. Mutual agreement of borrower and lender of the value and age of the asset - KEY POINT - In many cases it is very appropriate for some additional cost around a 3rd party appraisal by a qualified EQUIPMENT APPRAISER to determine the full proper current value

3. The ability of the borrower to demonstrate the true value and use of the asset in generating sales and profits for the firm.




Naturally, the asset base of consideration for such strategies involves a broad number of industries and an even broader number of assets. More often than not, the need is very basic - how can you leverage assets to bring more cash into the firm? In certain cases, if a transaction is managed properly, you can enhance your overall financial statement ratios.



So, ask our clients, how does it work? You 'sell' the equipment back to the finance or leasing company. Under the umbrella of equipment financing and lease documentation your firm 'leases' the asset back from the finance firm.



There are of course some key accounting issues that Canadian business owners and financial managers have to take into consideration. Based on the value of the transaction your firm may have to book either a gain or loss on the transaction. The ability to capitalize on cash received will always be a key consideration as other financing arrangements your firm might have in place, such as lines of credit, etc, stay intact.




What are some of the other motivations for considering such a strategy? We can broadly group them into a couple of categories - i.e. Cash flow, accounting and tax, and balance sheet, and income statement enhancement.



If your firm structures the transaction as a true operating lease when you enter into the sale leaseback you have somewhat magically taken debt off your balance sheet and improved many of your key operating and loan covenants.



Payments create a monthly expense and this amount more often than not is less than the depreciation taken on the asset, so, via the magic of accounting, your firm has created additional earnings! In cases where you do in fact have a 'gain' on the sale leaseback those also of course add to the profits of your firm. We love those accountants, right?!



In summary, Canadian business owners and financial managers should investigate the strategy of a sale leaseback of assets. In the current economic environment such a strategy can enhance your firm's overall liquidity and profitability. That's a good thing.

KEY POINT - Entering into the sale leaseback consideration there should be a solid understanding of issues such as balance sheet effects, interest rates and financing costs, the difference between a CAPITAL LEASE and an OPERATING LEASE and the purchase option at the end of the term of the lease. ( A higher purchase option has the effect of lowering the monthly payment on a financing lease transaction.

POTENTIAL DISADVANTAGES OF A LEASEBACK FINANCE

In evaluating a commercial financing transaction of this type it is sometimes easy for inexperienced business people to misunderstand this type of transaction, so your firm's goal should be to understand what the financing can do for your firm, ensure you understand any potential risk or disadvantages, as well as understanding how the transaction process works. The one clear and simple disadvantage of the transaction is simply the non-ownership of the asset - many companies have a pride of ownership mentality.

Another potential disadvantage is the potential complexity of working with any existing lender or most importantly your senior lender to get the asset released from their security - this is accomplished through a simple waiver process.

Additionally, proper consideration should be given to the amount of depreciation and obsolescence of any given asset or asset class, and the consideration around an operating lease vs finance lease . Due to changes in worldwide accounting rules off balance sheet financing does not always have the same benefits it used to have .

HOW TO EVALUATE A SALE-LEASEBACK

Generally speaking, a sale leaseback makes sense when assets transferred have value and are appreciated ( example - real estate ) or alternatively they are revenue and profit-producing assets of the business.

Assets that aren't critical to the use of the business are often simply sold and deemed as not being core to the operations of a company. But the refinancing process we have outlined releases equity in assets you own and can provide valuable working capital at a time when it is really needed.



CONCLUSION

Companies have the ability to consider numerous benefits of the sale leaseback process. It is important to ensure that the appropriate business, tax, and accounting considerations are taken and assessed properly. Utilizing this financing strategy allows companies to benefit from tax issues related to sale leaseback accounting, as well of course as utilizing the cash to grow sales revenues, clean up the balance sheet and reduce other more expensive debt.


Seek out and speak to a trusted, credible, and experienced Canadian Business Financing advisor to ensure you are working with the right sale lease-back companies.


7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

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 areas 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.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

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 financing 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.


Click here for the business finance track record of 7 Park Avenue Financial





Stan Prokop
7 Park Avenue Financial/Copyright/2020

SALE LEASEBACK LEASING IN CANADA - SALE LEASE BACK 101 !

Is a Sale Leaseback of My Business Assets a Good Thing?

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Sale Leaseback Financing

At various points in the economic cycle a business owner or financial manager considers a sale leaseback financing. Is that type of transaction advantageous, and what are the risks and benefits?

Many firms do not fully know about or understand the advantages of this type transaction. This is a classic alternative financing strategy that works best when it is a good deal for the lessee and the lessor. It does not work well when the lessor presumes it is a 'cash grab' by the lessee.

This type of financing should be contemplated if your firm has the following characteristics:

- Experiencing working capital challenges
- Declining profits
- Excess unencumbered assets
- High amount of debt




If a company has a high amount of debt a sale leaseback transaction can still be a very positive financing event. By structuring the the transasction as an operating lease the debt becomes 'off balance sheet '. This gives the appearance of the company being not so highly leveraged and quite often it can save the company from being in default of its loan covenants.

In many cases the sale leaseback can bring a significant amount of capital back into the firm.

So when does a firm consider such a transaction - every industry is different but if the firm is bottom line, over leverage, i.e. Debt too high, there can be advantages to an off balance sheet sale leaseback transaction.

If a company has historically had pride of ownership, and has significant assets, and is suddenly going through a high growth stage it also becomes a good candidate for a sale leaseback. Cash flows are restructured and the company gains significant new working capital.

The best candidates, overall, for this type of financing strategy are high growth companies who would prefer to invest additional cash in receivables and inventory. Naturally no lessor wants to consider such a financing if the company is in some sort of death spiral.

In some cases when assets have in fact appreciated (not depreciated in value) the company may actually be able to report a gain in earnings, as the sale leaseback transaction in excess of book value allows the company to book the sale leaseback gain into the profit account!

Many government institutions, such as municipalities, hospitals, etc may find this type of financing strategy as optimal in solving temporary budget cuts and working capital challenges.



In summary, a properly structured sale leaseback can provide new cash, enhance earnings, and in effect be a creative way to temporarily re finance the firm or institution.





7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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 .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
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


Article Source: https://EzineArticles.com/expert/Stan_Prokop/432698


Article Source: http://EzineArticles.com/3723483

Important Sale Leaseback Financing Success Factors

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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

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

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 .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
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

The Evolution Of The Sale Leaseback Transaction In Canada

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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

The sale leaseback transaction in Canada. It's back. Let's examine the resurgence of this unique financing transaction via a lease finance company or other financial firm.

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
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


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 .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
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

Is A Sale Leaseback Transaction , Or A Bridge Loan Your Solution To Working Capital . Sales Leaseback Finance Works!

A Reverse Position ! Refinance Assets With Sale Leasebacks!


Information on the sale leaseback as a working capital strategy . Why sales leaseback finance or a bridge loan just might be the solution you are looking for in an innovative financing solution





We're pretty sure (and we hope!) that Canadian business owners and financial mangers leave no stone unturned when in comes to exploring different financing options in what can generally be viewed as a tougher credit environment in Canada. Not brutal, but tough for sure!

One of those options is the sale leaseback strategy. It's what we can call a reverse position; you are in effect using sales leaseback finance, via a lease or a bridge loan, to sell your asset back a finance firm. The benefits. They are pretty clear - no new excessive debt and new cash flow into the company, leveraging your balance sheet.

Naturally it’s all about the value of the assets - it’s simply a method to maximize, via new found cash flow, the value of existing assets on your balance sheet. What the business owner and financial manager have achieved is in effect a redeployment of shifting of the balance sheet, for the better we believe! Depending on the quality of the asset and your firms overall credit and financial strength the pricing that you can achieve from a viewpoint of interest rate on the deal is probably a lot better than mezzanine, and certainly better than the cost of new equity .

By the way, even real estate assets are a solid asset to consider in the sales leaseback finance decision. Your essential decision should revolve around the fact that you can generate a higher return in your business than the rate you are being charged for the bridge loan or leaseback. Makes sense right, as its all about return on capital and investment?

If a value, via an appraisal or some other method can be placed on an asset it can be refinanced. So that covers real estate, heavy equipment, technology assets, construction equipment, printing presses, rolling stock assets... well we think you get the picture.

For a number of clients that we talk to their decision simply revolves around ' what is my core business ' and if it isn’t real estate it makes sense to deploy cash in your normal business operations. Recall that in Canada we have even seen some of the banks in downtown Toronto sell their prestigious bank towers... why? … for cash! And these are the guys supposedly with all the cash !

Growing your company is one key use of sale leaseback capital - other reasons might be to pay down debt, pay off government arrears, improving your covenants with the bank or other lenders, or simply taking advantage of certain assets which have either appreciated , or held their value as you have made your payments .

It is important to talk to your accountant or tax advisor on the implications of any tax scenarios that come with a sale leaseback, but we have rarely seen that hold back a good deal. Also, when a pure ' lease ' scenario does not work a bridge loan financing is often just as effective

Seek out and speak to a trusted credible and experienced Canadian business financing advisor on the advantages and implications of the sale leaseback or bridge loan.