The leaseback solution is ideal if you need to increase your cash flow and you own your production assets. Indeed, it allows you to obtain cash in the moment while developing your investments and all this with a flexible contract. It is a real lever for your growth. In this article, you will learn how leaseback works and why it can be interesting for your industrial company.
The leaseback method of financing is also known as sale and leaseback.
Leaseback allows a company that owns its capital goods to sell them to another company. This is used by the company in the context of a lease to benefit from it in the moment. In simple terms, you go from owner to lessee while keeping the asset available and building up your cash flow. You can therefore have cash to invest.
irst, Company A transfers an asset to a finance company (Chetwode or one of its financial partners for example). Then, this finance company signs a lease agreement with company A, which may, if it wishes, make the asset available to company B subject to the prior agreement of the finance company, which has become the owner of the asset. And finally, when the contract ends, Company A (or, if applicable, Company B) can recover its asset by exercising the purchase option.
In order to set up this type of scheme, various feasibility elements must first be analysed: firstly, the capital asset must correspond in terms of value to the amount of financing sought; secondly, the lessee (company A or B) must be able to subscribe to the credit (legal and economic capacity); and thirdly, the structure of the financing operation must make it possible to manage and compensate for the risks inherent in it.
Leaseback concerns all companies (of different categories, sizes or legal forms), especially those that are financially sound and need alternative financing to optimise their cash flow without having to resort to bank debt or to enhance their balance sheet. This is very suitable for industrial SMEs and ETIs, for example.
Leaseback can be used to finance capital goods for a variety of structures, including industries such as automotive, then tools such as construction equipment, or real estate such as offices, hotels, warehouses or vehicles.
Currently, the trend towards servicing is growing. Indeed, an asset has a value mainly in relation to its use and not in the fact of owning it.
Leaseback is a solution for various reasons:
Leaseback financing allows you to improve your cash flow quickly, as soon as the contract is signed, you will have access to cash which will be repaid later by the rents that you will pay. This increases your working capital.
With leaseback you can develop your investments without blocking access to your cash in the immediate future. You can easily set up tangible or intangible investments. Then you can develop new markets or invest in more innovative machinery. This will make you more competitive.
The funds raised through a leaseback operation with an alternative investor will not be included in the bank debt and will, moreover, make it possible to repay certain debts. Depending on your accounting standards, these funds may or may not be accounted for as debt in your company.
In addition, you will be able to keep the use of your property, via the contract you have signed with the financing company, and take it back at the end of the contract. This will not impact your production cycles. Also, this type of financing allows great flexibility with the associated lease contract.
And also, with the deduction of the rents received (recorded as expenses), this will reduce the taxation of your profit. It is therefore an operation that may optimise your tax situation. Conversely, the initial operation of selling the asset may generate a taxable capital gain (or reduce a loss if your company is in a loss-making situation).
We, Chetwode, specialise in industrial finance and have arranged over 150 financings for around €1 billion. We are experts in leaseback transactions.
We can set up a lease for you for the duration you require. The disposal is fast and can generate cash according to your needs.
In conclusion, leaseback can be a relevant financial solution if you own a piece of equipment and need to increase your cash flow. To find out more about our equipment finance solutions, you can click here.