FINANCE PRODUCTS
Sale and Lease Back

What is it?

A Sale and Lease back agreement involves the lease provider or financier buying equipment which has already been purchased by the business. The parties than enter a lease agreement to facilitate repayment over agreed terms. The type of lease agreement is not restricted and may be an operating or finance lease or CHP. Generally lease providers will only consider a Sale and Leaseback for equipment purchased within the last 3 – 6 months.

Equipment commonly leased with Sale and Lease Back


Pros

Tax and cash flow benefits
Affordability
No upfront cash outlay
Any type of lease agreement
can be utilised
Negotiable terms
Cash flow friendly

Cons

Approval criteria may be more onerous

What type of business uses Sale and Lease Back?

In short business is increasingly foregoing owning equipment which has nominal resale value and a reduced optimal life.

Tax and accounting treatment for Sale and Lease Back

The transaction has two components; a sale and a lease. On the sale side, if the agreed finance value is equivalent to the the purchase value or written down value, there is no profit or loss to realise on sale. The balance sheet treatment will then depend on what lease product has been agreed to refer operating lease, Commercial hire Purchase, Chattel mortgage, finance lease.

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