Sale and Leaseback

Key Highlights

• A sale and leaseback is a smart financial move where a company sells an asset it owns- like a building or machinery- to free up cash, but continues to use it by leasing it back from the buyer.

• This way, the company gets cash from the sale while still using the asset under a lease agreement.

What is Sale and Leaseback?

A sale and leaseback is a smart financial move where a company sells an asset it owns- like a building or machinery- to free up cash, but continues to use it by leasing it back from the buyer. It's a way to improve cash flow without disrupting day-to-day operations. This way, the company gets cash from the sale while still using the asset under a lease agreement.

How it Works?

• The company sells its asset (like a warehouse or machinery) to a buyer, often a leasing company or investor.

• The company, then, signs a lease to rent the same asset back from the buyer.

• The company keeps using the asset as a renter (lessee), and the buyer becomes the landlord (lessor).

• This gives the company cash upfront without interrupting its operations.

Common Assets

• Real estate (like offices or warehouses)

• Machinery or equipment (like airplanes, trains, or factory tools)

Why it Matters?

• Cash Boost: Frees up money tied up in assets, helping with cash flow or growth plans.

• Keep Using the Asset: The company can still operate as usual without owning the asset.

• Better Financing Option: Often provides more cash and longer terms than regular loans.

• Tax and Accounting Perks: Can improve financial statements or offer tax benefits.

• Fewer Restrictions: Unlike bank loans, these deals usually don’t come with strict rules.

Downsides

• The company no longer owns the asset, losing some control.

• Can’t claim tax benefits from depreciation anymore.

• Future lease terms might be expensive or not guaranteed.