How Sale and Leaseback Works
An independent valuer assesses the current market value of the assets. The lender agrees to purchase the assets at an agreed value - typically 70-90% of market value - and simultaneously enters a lease agreement under which the business pays a monthly rental to continue using them. The cash from the sale goes directly into the business. The leaseback can be structured as a finance lease (business has full use throughout a primary term with a peppercorn secondary) or an operating lease (asset returned at the end of term).
What Can Be Sale-and-Leased Back?
Most business assets with an identifiable market value and the ability to be independently verified. Common assets include: CNC machines and manufacturing plant; commercial vehicles and fleet; construction equipment; agricultural machinery; medical and dental equipment; catering and hospitality equipment; and commercial property (the property equivalent - selling the freehold to an investor and leasing back the premises - is a larger transaction typically handled by commercial real estate specialists).
When Sale and Leaseback Is Most Useful
The most common reasons businesses pursue sale and leaseback: releasing capital from a fully-owned asset base to fund growth, acquisition, or debt repayment without taking on new unsecured debt; improving balance sheet liquidity ahead of a funding round or refinance; providing working capital for a cash-flow crisis without the directors providing personal guarantees; or restructuring the capital base of a business to separate asset ownership from trading operations.
Costs and Considerations
The cost of sale and leaseback is the ongoing monthly lease payment, which replaces the depreciation charge on the owned asset. Businesses should compare: the monthly lease cost versus the opportunity cost of having capital tied up in assets; the tax treatment of the leaseback payments (typically 100% allowable); and any early termination costs if the business wants to buy back the assets or terminate the lease before the end of term. Always take accounting and tax advice before proceeding.