Sale & Leaseback - Complete Guide

Sale and leaseback involves two simultaneous transactions:

1. 1You sell an asset you own to a finance company at its current open market value.
2. 2The finance company immediately leases the asset back to you at agreed monthly rental payments.

The result: you receive immediate capital (the sale proceeds), you retain operational use of the asset (via the leaseback), and you spread the ongoing cost over the lease term. At the end of the lease, you typically have the option to purchase the asset, continue leasing it, or return it.

Any business asset with an identifiable secondary market value can be sale-and-leased back. The most common are:

• Construction plant: excavators, cranes, telehandlers, piling rigs - assets with well-established auction market values.
• Commercial vehicles: HGV fleets, artic trucks, tippers - assets with transparent CAP guide values.
• Agricultural machinery: tractors, combine harvesters, and farm equipment - strong secondary market through specialist agricultural auctions.
• Industrial machinery: CNC machines, printing presses, laser cutting equipment - assessed by specialist valuers.
• Marine and aviation: commercial vessels, yachts, and aircraft - specialist valuers with sector knowledge required.
• Assets that do not qualify: highly bespoke equipment with no secondary market, assets in poor condition, and assets already subject to substantial existing finance.

Typically 70-85% of the asset's current open market value. The advance rate depends on:

• Asset type: well-known assets with transparent secondary markets attract higher advance rates.
• Condition: well-maintained assets in good condition attract higher advance rates.
• Lender appetite: specialist lenders in the specific asset sector are more comfortable at higher advance rates than general lenders.

A £300,000 excavator in good condition from an established contractor can typically release £240,000-£255,000 in immediate capital.

Under IFRS 16 (required for most UK companies from 2019), sale and leaseback transactions are treated as follows:

• If the transfer is a sale under IFRS 15: the asset is derecognised, a right-of-use asset is recognised, and a gain/loss may be recognised on the difference between the sale proceeds and the asset's carrying value.
• If the transfer is not a sale: it is treated as a secured borrowing.

The VAT and capital allowances treatment varies by asset type and structure. Discuss with your accountant before proceeding - the accounting treatment is an important consideration for many businesses.

Sale and leaseback is particularly effective for:

• Growing businesses that need capital faster than trading generates it - releasing value from assets acquired in earlier growth phases to fund the next phase.
• Businesses with strong assets but limited access to unsecured finance - the asset value carries the transaction.
• Funding a deposit on new equipment - releasing capital from an older machine to fund the deposit on its replacement.
• Working capital for seasonal businesses - construction and agricultural businesses releasing capital in autumn to fund winter working capital.
• Restructuring - releasing capital from assets to reduce bank debt or improve the balance sheet before refinancing.