A sale-leaseback agreement refers to an arrangement where a company sells one of its fixed assets to a corporate financier. However, as per its conditions, the buyer can then lease the asset to the seller for a certain period. The company can continue to use the asset to conduct its commercial operations in the market. It just has to pay lease payments to the buyer regularly and charge the expenditure to its revenue account. In the process, the company can improve its cash flow position by releasing funds; it ties up with the asset. It can then reinvest the money to implement its expansion programs or to pay off short-term debts.
Sertant Capital – What Should Companies Consider When Entering into Sale-leaseback agreement?
Sertant Capital, LLC, is a popular finance company with 25 years of experience operating from Newport Beach, California. It specializes in providing its corporate customers with a wide range of equipment and vendor financing solutions. These include sales-leasebacks, capital leases, refinancing options, step up/down payments, TRAC leases, and fixed-rate financing. It caters to the needs of a diverse range of companies conducting their activities in almost every industry in the economy. Since its incorporation, this finance company has been able to fund transactions worth more than $5 billion.
The experts at Sertant Capital say sale-leaseback agreement is a cheap and convenient way for companies to raise funds. This mode of finance is a better option for taking out a bank loan, mortgage, or issuing equity shares. In the process, the companies can get the money they need without having to provide collateral. However, they should consider the following five factors before entering into an agreement with a corporate-financier specializing in sale-leasebacks:
1. The purchaser might include certain restrictions in terms of the agreement on the companies’ right to sub-let the assets,
2. Companies need to ensure the sale-leaseback agreement contains provisions for automatic renewal of the lease,
3. Companies should be able to negotiate a buy-back agreement with the seller after the expiry of the sale-leaseback period, and
4. Companies need to take certain tax considerations into account in sale-leaseback, such as capital gains.
Advantages of sale-leaseback for companies
Following are the benefits of sale-leaseback agreements for companies:
1. They are not responsible for the risks associated with the ownership of the assets,
2. Companies can get adequate funds under a sale-leaseback agreement without increasing their existing debts,
3. Entering into sale-leaseback agreement help companies to prevent corporate takeovers by their competitors,
4. Sale-leaseback agreements enable companies to improve creditworthiness by converting fixed assets into the current category,
5. In a sale-leaseback agreement, the purchaser cannot impose usury laws on the company,
6. Companies can claim relevant tax deductions on the lease payments they make to purchasers under the sale-leaseback agreement.
The specialists at Sertant Capital sum up by saying sale-leaseback agreements are a boon for companies who want to improve their cashflow. Under this mode of financing, they do not have to provide collateral or increase their existing debts. They can even claim tax deductions on the lease payments and are not liable for usury laws.