How does Sale-Leaseback work?
Leaseback is a financial alternative to traditional banking capital, in which the seller sells a property and immediately begins renting the property to the buyer, that is, the seller no longer owns the property, but continues to enjoy it as a renter.
The Sale-Leaseback gives the liquidity seller and to buyer income for the security of a lease contract in the medium, long term.
4 Advantages of Sale-Leaseback For the buyer and seller
The main reason why Sale Leaseback is carried out is because the seller needs capital to invest in improvements to that asset.
The most common reasons and advantages for the seller are:
- Help finance the expansion of existing business, purchasing new production equipment or investing in new business opportunities. Sale Leaseback allows the company to access more capital than traditional financing methods. Since the company receives the 100% of the value of the property.
- Help to reduce debt and improve the company's balance sheet.
- It exempts the seller from paying income tax on this corporate asset and enjoys benefits as a tenant, being able to deduct all rental payments as a legitimate business expense on their annual tax returns.
- Help to limit the risks associated with real estate ownership, such as cyclical market variations.
On the other hand, between the reasons and advantages of Leaseback for buyers stand out:
- Fair investment in the form of rent during the lease term, and profitability by owning a depreciable property, already occupied by a reliable tenant
- Long-term leased asset with a guaranteed income stream
- For tax payment purposes, the buyer can deduct the expenses of an investment in a depreciable property in order to recover the cost of the investment
- possibility of invest in a property that the tenant wants to have in the long term
What type of asset is suitable for Sale-Leaseback?
The assets or properties most used to perform Leaseback are the machinery and real estate. But, they are also used in assets such as patents and licenses, the hardware and software.
Differences between Leaseback and Leasing
Lease means rent in English and both terms use it in their name.
Although, these types of financing have a similar process, they work the opposite with respect to the order.
- He Leasing, begins with a rent with purchase option at the end of the contract.
- However the Leaseback The owner sells the asset, but immediately rents it to the buyer and at the end of the rental contract also has the option to repurchase it.
External financial management Alterfinance
If you are looking for alternative financing, at AlterFinance, we are specialists in direction external financial of companies.
We help you not only get capital, but we can provide you with different solutions that help you improve your financial situation such as Leaseback through private investors.
contact us and talk to one of our financial advisors today to achieve professional and business success.