Benefits of sale and leaseback – what are those? Even those choosing to do a sale-leaseback to raise capital for a faltering business will find a buyer if the transaction is structured to all parties’ benefit.
RA sale-leasebacks are evaluated and packaged by the credit of the seller/lessee, by the type of property, and by the lease structure: Credit of lessee (tenant), National Credit-tenant, Regional tenant.
Benefits of Sale and Leaseback
Before entering into a sale-leaseback, the seller should compare his tax liability as owner with his projected tax liability as lessee. This calculation must include the tax consequences of the sale as well as comparison of deductions for rental payments as lessee with depreciation and interest deductions as owner. An IRA analyst will perform this analysis for your particular circumstances.
Generally, advantages for companies considering selling their property and leasing it back include:
No Debt. If you have debt on your existing facility, you will remove that debt from your balance sheet. If you have no debt on the existing facility and build a new facility with the cash from the sale of the existing facility, the new facility will have no debt. The lease on the existing facility will usually be a contingent liability.
Keep Control and Profits. You will continue to have total control of, and retain all of the profits from, the operation of the business activity conducted in the existing facility. You sold the facility, not the business activity.
100% Financing. You can raise cash equal to 100% of the market value of the existing facility — more than if you borrowed funds against the existing facility. You can raise 100% of the cash from a single source — our group. You do not have to raise debt and/or equity financing from multiple sources.
100% Deduction. You can deduct 100% of the lease payments for tax purposes. With debt financing, you can deduct only a portion of the loan payments.
Fast. The process only takes 3-6 months once the negotiations have been finalized between you and our group. It is a relatively simple process and has far fewer requirements than traditional financing methods. At closing, you receive full payment for the purchase of the existing facility.
Liquidity. You create liquidity by freeing up cash that is now tied up in existing physical facilities. The freed up cash can now be used for any purpose.
High Return. The cash you have tied up in your existing facility is typically generating a much lower return than you could get if you reinvested that cash in a new project facility, the expansion of your business activities, or new ventures. By selling and leasing back your existing facilities, you continue to control and profit from the business activities conducted in the existing facilities and can reinvest the freed up cash in new high-return activities.
Leverage. You raise the funds you need to expand your business or to invest in new ventures by selling your existing physical facilities to our group and leasing those facilities back.
Lower Risk. Many projects are financed with risky short-term debt. The leaseback allows you to lock into a long-term fixed lease, raise the money to pay off the short-term debt you currently hold, and continue to control and profit from the business activity conducted in that facility.
As you can see there are many benefits of sale and leaseback. However, consider all the options carefully before going into sale-leaseback business.
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