Sale & Leaseback explained

There are several benefits of using a sale and leaseback solution for your business including:

• Preserving capital: it can help free up capital that was previously tied up in assets which can then be used for a variety of other business purposes.
• Flexibility: Even after selling the asset, the seller can continue using it, ensuring that their business operations aren't disrupted.
• Tax benefits: In some cases, a sale and leaseback can offer significant tax benefits.
• Less maintenance: When the company sells the asset, the responsibility of maintaining and managing it falls to the new owner.

Considerations

By choosing sale and leaseback, there are also some considerations you should be aware of before entering into an agreement.

• Financially, a leaseback can release cashflow quickly to a business, however, over the long term, the company may end up paying more in lease payments than if it had retained ownership.
• Since the seller no longer owns the asset, they lose some control over it. They cannot make changes to the asset without the owner's (lessor's) permission.
• If the value of the asset decreases, the owner might face financial losses if they decide to sell.

Thoroughly evaluating the asset and its value, as well as the financial stability of the seller/lessee, can help mitigate risks.

We will only ever arrange finance agreements that are affordable and enhance your financial strategy, but in the unlikely event that you cannot keep up with repayments on your lease, you may lose the asset. It is important to carefully consider the terms and conditions of the lease agreement to take full advantage of the benefits of leasing and minimise any potential risks.

Yes! Finance leases, hire purchases and operating leases are also great financing options, but there are some key differences between them:

• With a finance lease, the funder pays the supplier for the asset and in turn then become its legal owners. They then lease/hire the equipment back to the end user. The payments are charged plus VAT which can be reclaimed as normal.

• Similarly to a finance lease, when you enter a Hire Purchase agreement the asset is paid for by the funder, but they will want the VAT to be paid up front on the cost of the equipment (which can be claimed back as normal). The funder then charges a regular fee to the end user, and the last payment has an additional option to purchase fee which transfers legal title to the end user.

• An operating lease is a hire rather than a credit agreement which means the organisation is paying simply to use the equipment for a certain time period. When setting up the lease the lender would estimate how much the equipment is likely to be worth at the end of the finance term (its residual value) and that amount would deducted from the lease value, reducing the payments.

Visit our Asset Finance page for more information.