What Is a Sale-Leaseback?
A leaseback is an arrangement in which the company that sells an asset can lease back that same asset from the purchaser. With a leaseback—also called a sale-leaseback—the details of the arrangement, such as the lease payments and lease duration, are made immediately after the sale of the asset. In a sale-leaseback transaction, the seller of the asset becomes the lessee and the purchaser becomes the lessor.
A sale-leaseback enables a company to sell an asset to raise capital, then lets the company lease that asset back from the purchaser. In this way, a company can get both the cash and the asset it needs to operate its business.
Understanding Leasebacks
In sale-leaseback agreements, an asset that is previously owned by the seller is sold to someone else and then leased back to the first owner for a long duration. In this way, a business owner can continue to use a vital asset but ceases to own it.
Another way of thinking of a leaseback is like a corporate version of a pawnshop transaction. A company goes to the pawnshop with a valuable asset and exchanges it for a fresh infusion of cash. The difference would be that there is no expectation that the company would buy back the asset.
KEY TAKEAWAYS
- In a sale-leaseback, an asset that is previously owned by the seller is sold to someone else and then leased back to the first owner for a long duration.
- In this way, a business owner can continue to use a vital asset but doesn’t own it.
- Sale-leaseback is a quick way to raise capital