If you have owned your business for any length of time, you know there are times when you have reduced cash flows or working capital. During these times, you may have limited options to increase your cash quickly. You either have to dramatically increase your revenues or reduce your costs. However, you may not have considered a sales leaseback.

What Is Sale Leaseback Financing?

When you enter a leaseback agreement, you sell your assets to a company that will then lease them back to you. You receive the full sale price, which boosts your available cash, and then you make regular lease payments for the duration of the lease. As soon as you sell your assets, you negotiate your lease terms with the buyer (now owner).

Not only do you get an infusion of cash, but you can keep and still use your equipment. In addition, you are under no obligation to purchase the equipment back from the new owner, so when your lease is over and you are flush with cash, you can purchase new assets or lease newer ones.

What Benefits Can You Expect in a Leaseback Arrangement?

As you can see, one of the most important benefits of a leaseback agreement is a quick influx of cash. Your balance sheet may also improve because you can eliminate the debt against the assets you sell. Owning assets also has risks due to market volatility and unexpected maintenance or repair costs.

You also get to keep using your assets. You can stay in your building if you sold your corporate real estate or continue to use your equipment if you sold it. You save any expense you would have had to repurchase these assets, including moving costs, financing or purchase costs for new equipment, etc.

Buyers receive guaranteed income for the length of the lease, giving them a strong return on investment.

What Industries Commonly Use Sale Leaseback Financing?

Although any industry can pursue a leaseback agreement, there are several that use them frequently. Companies with extensive, valuable fixed assets, such as land and equipment, commonly use leasebacks. For example, real estate development firms commonly use them. They get an influx of cash for a major project and can keep their tools to complete their project. The aerospace and transportation industries also favor these agreements.

If you need to raise capital quickly, investigate the pros and cons of a sales leaseback agreement.