A Sale Leaseback occurs when a real estate owner sells the property it occupies to a buyer and simultaneously leases the property back under a lease. A sale leaseback is a financing mechanism for raising capital for a company’s growth. Motivating Factors for a Sale Leaseback:
Raise Capital to reinvest back into their core business. • Improve Financial Health and other financial ratios by paying down debt and improving liquidity, among other things. • Prepare for a Sale or Company Restructure to maximize seller proceeds or to minimize equity basis. • Reduce Property Ownership Risk by maintaining control over the property but limiting risk associated with market downturns or disaster.
Before using a Sale Leaseback as a financing tool, careful consideration must take place: • How much is my Real Estate worth? • How do I establish fair lease terms? • What are my Tax implications if I sell my property? • Will the new lease be considered a Capital Lease or an Operating Lease? • How will I manage the demands of the transaction while not hindering the operation of my business?
Choosing the correct adviser is key in weighing the pros and cons of the Sale Leaseback financing tool.
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