The Ins and Outs of Sale Leaseback Financing for Capital

Sale-leaseback financing is a relatively underutilized strategy that can provide businesses with a considerable influx of capital. This strategy consists of a business selling its owned real estate to an investor or a financial institution and then leasing it back over a mutually agreed-upon lease term. It is an attractive financial tool that allows businesses to unlock the equity tied up in their real estate assets while still maintaining their operations at the same location.

Advantages of Sale-Leaseback Financing

The beauty of sale-leaseback financing lies in its simplicity and benefits. Primarily, it provides business owners with an opportunity to free up capital. Businesses can utilize this capital for various purposes such as expansion, funding new projects, clearing debts, or investing in operations. There is no restriction on how the capital obtained through sale-leaseback financing can be used.

Moreover, sale-leaseback arrangements typically involve long-term leases. This offers stability to the business, effectively allowing it to function with little to no disruption. As the property’s owner, the lessor assumes the responsibility for property taxes and major repairs, reducing the lessee’s (the business) overheads.

Considerations Before Choosing Sale Leaseback Financing

Despite its advantages, sale-leaseback financing is not without its considerations. Businesses must be prepared for the fact that they will no longer be the owners of the property. This means they won’t be able to freely make structural changes to the building, as they would need permission from the new owner.

In addition, businesses should be aware that while they are freeing up capital, they are also taking on a long-term rental commitment. Thus, they need to be confident in their ability to generate sufficient cash flow to meet these lease obligations.

The Sale-Leaseback Process

The sale-leaseback process starts with the business owner selling their property to an investor or institution. The sale price is typically based on the fair market value of the property. After the sale, the business leases back the property from the new owner under a ‘triple net lease’ arrangement where the lessee is responsible for maintenance, insurance, and taxes.

Sale-leaseback financing provides a unique opportunity for businesses to liquidate their real estate assets without any operational disruption. Although it might not be the perfect fit for every business, it can be a powerful tool for those needing an influx of capital for growth or stability. If you need fast and flexible access to working capital without divesting from your equipment, check out the sale-leaseback solutions from Select Capital today.