Sale and leaseback is used by a number of businesses that have a lot of their working capital tied up and they are unable to purchase equipment, raw goods, and other things they need to sustain their business. Sale and leaseback is beneficial to the lender and to the borrower.
How does sale and leaseback work?
Sale and leaseback consists of selling your assets or property to a lender for cash now. Then you will work out a contract with the buyer so you can leaseback the equipment or property. A number of companies engage in sale and leaseback because it frees up their working capital and you still get to stay in the same location or use the same equipment. Its really a win-win situation for both parties.
Who holds the rights to the property?
When you use sale and leaseback you no longer have legal control over the property. The person that you are now leasing it from has the right to the property. You will need to draw up a legal and documented agreement in order to transfer the property and to negotiate the ability to buy the product back from the seller in the future.
What do you need to have in order to use sale and leaseback?
Like anything else you need to understand what your business credit and business financial records look like. The buyer needs to make sure that you are good for the money they are lending you so they will proceed with caution. As long as you demonstrate to them that you can easily repay the loan because you now have freed up your working capital and improved your cash flow you will be able to acquire the money.
What should you do with the money?
You can spend the money on whatever you like but in order to get the buyer to provide you with the money you need to make sure you are reinventing it into the business. You need to take a look at your cash flow and see what you can do to improve it. Can you take the money and hire an accounts factoring firm to help you collect on your old invoices? Perhaps you should take the money and invest it into marketing so you can reach out to your existing customers and try to attract new customers. This is a great idea and it will easily convince a lender to take a chance on your business.
Why do investors use sale and leaseback?
One of the main reasons you will catch investors dabbling with sale and leaseback is because they can earn a lot of money from interest. They also have the potential to acquire the property if you default and they can choose to run the business or they can choose to sell of the property. They may be able to sell off the property at a higher rate, which provides them with a decent profit. The investors that use sale and leaseback also enjoy some wonderful tax benefits from the process. The buyer is able to claim all the depreciation on the property.
Sale and leaseback opportunities are all around and just about anyone can engage in them to expand their cash flow or to generate a nice profit from the business. If you are a small business owner and you need money now, sale and leaseback may be the best solution out there to help you acquire the money you need and to help you avoid taking out another small business line of credit or personal loan or even using credit cards for emergency cash.
Corporate Credit Concepts specializes in sale and leaseback. For more information about sale and leaseback and how it might benefit your business, please CLICK HERE for a free phone consultation.