What Are the Benefits of Sale-and-Leaseback?


A sale-and-leaseback arrangement is one in which a company sells a piece of property to an investor and then turns around and leases it from the buyer. This arrangement is commonly used by companies that wish to raise capital for various purposes. A sale-leaseback can provide a company with several advantages.

Easy Access to Money

One of the major advantages of the sale-leaseback agreement is that it provides an easy way for companies to access money when they need it. The company does not have to worry about having solid corporate credit or a certain amount of annual income. Instead, it can simply sell its property and generate money through this process. It will not have to lose the use of any of the equipment or property and it can still get the money it needs.

Shift Risk

Another benefit of the sale-leaseback arrangement is that it helps shift some risk over to the purchaser of the property. When a company owns a large amount of equipment and property, it takes on the risk of that property becoming obsolete. Once this happens, the company may not be able to sell the property for an adequate sum. By selling the property while it is still useful, this risk can be avoided. If the equipment becomes obsolete, the company can simply not renew the lease and get different equipment.

Boost Corporate Credit

One of the side effects of a sale-leaseback is that it can help boost a company's corporate credit rating. For instance, if a company sells all of its equipment and property and then pays off the loans that it had on this property, it will clear out the company's debt. Since one of the major factors that determines a company's credit score is its debt load, this act can significantly improve the company's chances of getting financing in the future.

Tax Considerations

Using a sale-leaseback can also help a company save some money on taxes. Once the company sells the property and starts leasing it back, it can deduct the entire amount of the monthly payment on its taxes. By comparison, when you buy equipment with a loan, you can only deduct the interest portion of the payment. This allows you to get a much larger tax deduction for your business, which helps you keep more of your income.

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