Sale and Lease Back: Make directly available capital out of your fixed assets
Sale-and-lease-back is one of the most modern forms of leasing. The financing makes it possible to activate hidden reserves in the company and thus increase your liquidity.
Real estate, machines, vehicle fleets and more – this investment capital is important for companies, but not flexibly available when fast liquidity is required. Sale-and-lease-back changes that. By selling hidden reserves and then directly leasing them back, equity is quickly available. The advantages of financing include, among other things, a low risk and tax advantages. Small and medium-sized companies in particular like to use this form of financing.
What is Sale and Lease Back?
In sale and lease back is it is a financing in which a company (eg. As vehicles, machinery, real estate or real estate) assets sold to a leasing company, and subsequently directly to a pre-determined rate (usually 7 to 14 percent pa) leased back. As a result, the leasing company receives liquidity without restrictions in its operational business, since the leased goods never physically leave the company. After the leasing contract expires (usually 48 months), the company has the option of buying back the goods from the leasing company.
How is the repurchase price determined?
There are three factors that have an impact on the buyback price:
- The wear and tear of the goods (calculated using the depreciation table)
- The interest during the lease term
- The customer’s request
A higher monthly leasing rate usually leads to a lower repurchase price (vice versa). The type of product leased also has a major influence: a computer has a shorter useful life and a higher loss in value than a car- consequently the buyback price for the computer is also lower.
YOUR ADVANTAGES OF SALE AND LEASE BACK AT A GLANCE
Rapid increase in liquidity
Through the sale and the leasing that is directly associated with it, hidden reserves quickly become equity that you can use flexibly.
In the case of sale-and-lease-back, unlike a bank loan or other loan, no additional collateral is required to realize the financing.
Since the leasing costs represent an operating expense, they flow into the company’s profit and loss account and thus reduce the tax burden.
When gaining liquidity through sale-and-lease-back financing, you are not tied up for the long term as you would with a purchase, but remain flexible.
THE SALE AND LEASE BACK PROCESS IN DETAIL
When a company needs money, the classic variant is often a bank loan. Sale-and-lease-back represents an alternative form of financing. As the name sale-and-lease-back suggests, this type of financing consists of two components: sales and leasing.
As an alternative to a bank loan, a company can sell its hidden reserves, i.e. its fixed assets . This can be objects such as real estate, machines or the vehicle fleet, as well as immaterial objects such as patents. In order to increase the company’s liquidity, such goods are sold to a sale-and-lease-back provider and immediately leased back. For example, if it is a machine, it may already have been written off in full or in part. When a hidden reserve is sold, the company’s fixed assets decrease and the equity ratio increases at the same time. The company has increased its liquidity many times over.
The sale of the goods is directly linked to the subsequent leasing. They remain in use by the seller without interruption and can be used as before. The ongoing leasing costs can be claimed for tax purposes. As operating expenses, they proportionally reduce the profit and thus also the tax burden.
This means that the sale-and-lease-back process is not only a particularly low-risk and flexible form of financing, it is also easy for companies to implement in practice. The respective conditions and key points of the financing can, however, vary between the providers.
SALE AND LEASE BACK FOR SMES: POPULARITY IS INCREASING
Thanks to its specific advantages, the sale-and-lease-back process is used more and more frequently in the manufacturing industry. The modern form of financing for the procurement of liquidity is also very useful for SMEs – i.e. small and medium-sized companies – since, in addition to the direct liquidity advantages, the risk is small, while the company can continue to operate in a predictable manner. Depending on the specific industry, there are different options for companies to profitably use sale-and-lease-back financing.
Sale-and-lease-back financing can be particularly worthwhile for companies and companies in the manufacturing sector. For example, production machines or systems can be sold and then leased cheaply in order to continue production as usual. However, if the machines are very specific or if they are custom-made, appropriate financing is usually difficult. The sale-and-lease-back procedure is ideal for both old and new machines. It should be noted that better conditions can usually be achieved with well-maintained machines. When purchasing a new machine, a possible early drop in the price of the machines must be taken into account.
Whether it is a large vehicle fleet or individual special vehicles – the vehicle fleet is usually a major cost factor for companies. However, by selling and leasing motor vehicles, these costs can be significantly reduced in order to create financial freedom for other purchases or investments.
The vehicles are leased back directly from the financing partner, which also reduces costs for repairs and maintenance of the vehicles. At the same time, the entire vehicle fleet can continue to be used as before – but now on more favorable terms.
Own real estate usually ties up an enormous amount of equity. If a cost-intensive expansion is planned or if the company is in financial difficulties, such a capital reserve can make all the difference. Sale-and-lease-back financing makes these reserves usable. The properties that come into question for this form of financing include classic office buildings as well as storage and production halls as well as special laboratories. Whether it is a new building or a property that has been used for many years – the structural condition is the most important factor.