DEROTTO expanded its lending network in 2023 to better serve its clients and be more competitive. An area DEROTTO is seeing an increase in demand is businesses needing access to cash. The need for cash may be a result of the increase in labor costs, increases in material costs, payment delays, outstanding debt, etc. One option a business can utilize is to tap into the equity in the free and clear equipment it owns. This strategy is called a “Sale-Leaseback”.
What is a sale-leaseback?
A sale-leaseback is an arrangement in which the owner of an asset sells it to a finance company, which then leases the asset back to the original owner. The finance company collects payments from the previous owner for an agreed-upon time period (between 2 to 5 years). Free and clear pieces of equipment and equity in residential and commercial property are common assets used in a sale-leaseback.
Why think about a sale-leaseback?
If a business owns several pieces of free & clear equipment, this equity can be converted to cash by implementing a sale-leaseback strategy. A sale-leaseback may make a lot of sense for many reasons:
Increase tax deductions - this is a big reason. Not all debt is tax deductible. For example, if a business is in arrears to CRA, this debt is not tax deductible. Using a sale-leaseback strategy, a business can convert a non-tax deductible debt to a tax-deductible debt.
Debt consolidation. Managing many payments can be a challenge and consolidating debt into one payment may make sense.
Managing cash flow. Many businesses enter into a contract and don’t see any money from the contract for 60 days, 90 days, or sometimes longer. A sale-leaseback can help a business bridge the gap during these periods.
You keep control and possession of the equipment. You can access the equity in your free and clear equipment without having to sell it.
Your business no longer has access to conventional financing. The current credit environment in Canada is tightening and many businesses don't have access to as much credit as they once did. A sale-leaseback is a finance option that many businesses are not aware of.
Need capital for expansion.
If the sale-leaseback sounds like something you want to explore, then reach out to DEROTTO Leasing. DEROTTO works with several lenders that specialize in sale-leasebacks.