What is a sales leaseback and how could it benefit your Middle Market organization? In plain terms, a sales leaseback happens when an organization sells one of its valuable assets (usually real estate) to another party and then leases the asset back for a set period of time.
Why would one be beneficial for your organization? Depending on your liquidity or financial situation, your company may be sitting in/on one of your biggest assets – property you own. And if you need access to money that asset represents, there are limited ways to go about getting it out.
What You Need To Know
In most cases, a leaseback has more pros than cons, but there are a few things to make sure you are aware of. First, your Middle Market firm should have a good understanding of the legal aspects of a sales leaseback and also the potential costs related.
Next, you’ll want to think about who would be the best buyer for your assets. You may want to turn to investors or your family in a family-run organization. You could also look into Real Estate Investment Trust. Spend some time investigating which matches most closely with your company’s needs and goals. Lastly, think about the potential negative side-effects. While they aren’t numerous, they could have a bigger impact for some organizations than others.
What Benefits Exist
Clearly, the biggest benefit is taking an asset that has little or no liquid value and turning it into cash. Your firm could pay bills, fund growth or any other number of things with the earnings from the sale.
Your debt ratio will usually improve greatly and your payments would turn into an expense which could be deductible. You’ll have access to funds without having to take out a loan and the terms of the leaseback could be more favorable than a traditional loan.
What Are The Potential Cons?
Again, there isn’t a long laundry list of cons, but it is important to remember what negative aspects exist and factor in how they could affect your organization. Obviously, there is the loss of the asset – which could potentially be negative at tax time or just in general. You’ll be in a longer-term contract, so you’ll want to make sure you fully add up the costs and interest associated. Your Middle Market firm will also lose out on depreciation and/or amortization.
The best thing to do before you start considering any leaseback options is to talk with your tax and legal experts to see if it makes sense and would be beneficial.
While a sales leaseback may not be for every Middle Market company, it is an option that exists and might be one you should explore further.
So what’s in the Mighty Middle Market for me? — get it right now at www.Go4ROI.com.