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The business advantages of a sale and lease back

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A sale and lease back is a straightforward finance facility in which a business sells an asset to a buyer and leases it back from the buyer.

With this type of business finance, business owners have the opportunity to improve cash flow without interruption to daily operations. The lessor becomes the owner of the asset for the duration of the lease agreement, after which ownership may be passed back to the lessee at the end of the lease if the agreement says so.

The business advantages of a sale and lease back are five-fold.

  1. Lower rates

It is usually the case that a sale and lease back is more economical than other types of finance. This is because the purchase is secured against the equipment, which means a lower risk for the buyer. The fees are lower as a result. Our monthly fees start from 3.6% making this an affordable way to raise capital.

  1. Tax advantages

With a sale and lease back the asset is treated as sold, the profit is amortised, and the finance lease back is usually treated as a separate transition. This means in most circumstances leasing costs can be offset against company profits as an operating expense, although your ability to do so depends on how the finance is recorded.

  1. Fixed payments

If you don’t want the hassle or uncertainty of irregular payments, then the fixed monthly payments under a sale and lease back will be appealing. We can’t speak for all lenders, but our rates are fixed, and you will repay what we buy your asset for plus our fee. This is over a term you choose, which can be 12 to 60 months.

  1. Low depreciation

Depreciation is over the shorter of the useful life of the asset and the lease term. You can usually take out a sale and lease back over 12 to 60 months. This means you can raise cash on a short or medium-term basis. If the asset or assets you wish to sell have a lower rate of depreciation, leasing them over a medium term is worthwhile.

  1. No downtime

A sale and leaseback allows a company to raise money from the sale of assets without actually handing the assets over physically. These stay in the business and never leave, so if you sell important assets like plant machinery these won’t be taken away. You can continue to operate as normal with no downtime.

  1. Frees up working capital

If you have assets that hold value then you have cash tied up in them. Rather than borrow new money like you would with a business loan, a sale and lease back finance agreement lets you release the value of existing assets. This finance is popular with asset rich businesses for this reason, who use sale and lease back agreements to raise working capital and fund their expansion and growth plans.

We specialise in sale and lease back agreements as part of our equipment refinance offering. Call us on 01234 240 155 to find out more.

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