Business line of credit for small business

What is Sale Lease-Back Financing?

Sale LeaseBack Financing is an asset based lending product that is funded by speciality lenders that allows a company to gain quick capital through the sale of fully-owned assets such as commercial realty or equipment. The asset is then purchased back as a lease from the same lender. This transaction allows businesses to use the capital for other business related ventures. These ventures may include new asset purchases, marketing strategies, and or additional projects. The company maintains possession of the asset, while allowing flexibility in normal business operations. Sale Lease-Backs are often set for a particular time frame and usually have favorable rates and monthly payments.

What are the two main types of Sale Leaseback Financing products that we focus on:

Commercial Real Estate Sale Leaseback Financing

Equipment Sale Leaseback Financing

What is Commercial Real Estate Sale Lease-Back Financing?

Commercial Real Estate Sale LeaseBack Financing is an asset based-lending product wherein a lender provides a capital advance to businesses against the value of a piece of real estate owned free and clear by a business. The lender purchases the Commercial Real Estate from the business then leases it back to the business (as the tenant) for continued use. The business usually agrees to pay all real estate taxes, maintenance, and building insurance along with other costs ie. utilities. Eventually, ownership of the property will revert back to the business once the lease payment of the term is paid back within the agreed upon period. Commercial Real Estate Sale LeaseBack Financing provides tax benefits of leasing while providing an advance of capital against an asset.

Companies that fully owned Commercial Real Estate can use the Sale LeaseBack Financing program in the following instances:

  • Businesses that own Single buildings
  • Businesses that own Retail space
  • Businesses that own Medical space
  • Businesses that own schools, churches, and nurseries or tree farms

With this Asset Based-Lending product most banks and non-bank lenders are willing to buy sale-leaseback properties on the basis of their returns. Companies looking to do sale leasebacks should research the market cap rate of their area and use it to price their asset. Lenders are willing to lend more against a property which typically can yield a higher amount of funding for the business. Having the business pay all the bills associated with the property makes it easier for the lender to own the property during the term and simply collect on their investment. Commercial Real Estate Sale LeaseBack Financing is funded with a long initial term. On average, they last a period of 10 years with an option to renew.

The first item to do is for a lender to get the property appraised as well as confirm the business’s ownership of the Commercial Asset. Once again the lender will then purchase barring any major issues. The lender will advance the business a loan that is based off of a percentage of the sale price of the Commercial Asset. The property will be immediately leased back to the business for an allotted time frame. Which allows the business to maintain full access and use of the Commercial Asset throughout the entire term of the Sale Leaseback Financing transaction. The lease payments provide the business with two major benefits. The first one being the lease payments if made on time over the full term of a Commercial Real Estate Sale Leaseback will close out the transaction and revert ownership of the Asset back to the business. The second benefit is that the lease payments provide the business with potential tax benefits from the expeditors. All while providing the business with access to additional capital without the company having to incur excess debt onto it’s books.

This product can provide business with some flexibility in setting the term of the lease

With this Asset Based-Lending product the business maintains control over the property

There are also potential tax savings for example. Since the business now is leasing instead of owning the Commercial Asset, it can write off the interest portion of the payments, in some cases they can write off up to 100 percent of their rent payments as a business expense.

There is typically an option to renew which can serve as an added level of protection for the tenant. Thus allowing the tenant the right to either renew their lease or to end the transaction at the end of the term and leave.

Commercial Real Estate Lease Back-Financing can help businesses added greater value to the building buy providing it with an income producing tenant with every best interest of the building in question

This product can tend to have some favorable rates and monthly payments in comparison to other Asset Based-Lending products.

The Business must own the Commercial Real Estate Asset free and clear.

The Commercial Asset’s value needs to be verified including a confirmed appraisal, property that passes a condition & environmental survey, a free and clear titled asset.

The company needs to have a good business credit score as well as the owners need to have a good personal credit rating.

The market cap rate of like kind Commercial Assets in the same area needs to be verified and confirmed.

The business must provide the companies revenue reports and financial statements to confirm that the business will be able to carry the awarded debt and be able to make all of the leaseback financing payments to full term.

Our goal is to be our client's trusted business financing partner from inception to the day they sell their business.
ADC Business Consultants are here to offer our clients all of their years of experience in providing capital to companies to grow and expand.

What is Equipment Sale Lease-Back Financing?

Equipment Sale Leaseback Financing is an Asset Based-Lending product funded by bank and non-bank lenders it works with businesses that own free and clear equipment to provide access to liquid capital. This product allows the company to use the Equipment as collateral for either a term loan or a non revolving business line of credit.

Plus maintain the full access to the Equipment to utilize as needed for the business. The capital could be used to expand the business or to purchase additional equipment. The amount given through an Equipment Sale LeaseBack is based on the auction value of the equipment, of which a portion of that auction value can be pledged to the lender/lessee for this asset based lending product.

Please keep in mind the auction value of a piece of equipment may be lower than the current appraisal value. Equipment Auction value is based on a combination of factors including but not limited to the age of, the market demand, and the amount of usage still left in the piece of equipment. The industry average for most lenders is between 25% to max 60% of the Equipment’s auction value. Equipment Sale LeaseBack Financing can be a great tool for companies with free and clear equipment to pledge and a need for capital to grow their businesses.

All types of businesses that own free and clear equipment could use Equipment Sale Leaseback Financing. Including but not limited to companies that own the following types of Equipment:

  • Commercial Transportation Equipment
  • Construction Equipment
  • Heavy Machinery Equipment
  • Industrial Machinery Equipment
  • Oil & Gas Equipment
  • Telecommunications Equipment
  • Manufacturing Equipment
  • Health & Fitness equipment
  • Medical Equipment
  • All types of IT Equipment (including: computers, laptops, servers, network switches, routers, telephone systems, copiers, faxes)

This Asset Based Lending product works as a one time transaction between the company that owns the free and clear Equipment and the lender that’s going to purchase the asset and act as the leasing firm. The business would sell the piece of Equipment to the lender; the lender in turn would use the Equipment as collateral and advance capital for up to 60% of the Auction value of the piece of Equipment. The capital could either be in the form of a term loan or a non revolving business line of credit depending on the specific lender’s guidliness. Since this asset based lending product allows the company retain access to the product during the duration of the funding, this means businesses are able to utilize their equipment to potentially produce profits and as means to provide access to liquidity. Once the funds are awarded the company simply needs to make all of the right advancements for the business with the capital, in order to ensure they will always have the profits to fully function and comfortably returns all of the capital owed.

The average repayment term for Equipment Sale LeaseBack Financing is often shorter in comparison to Commercial Real Estate Sale LeaseBack Financing. This has mainly to do with the shelf life for a piece of Equipment being shorter and it depreciating over time in comparison to a piece of Commercial Real Estate with a longer shelf life and an asset that typically appreciates over time. Typically most lenders’ repayment terms for Equipment Sale LeaseBack Financing is between 12 to 36 months for older equipment and up to 60 months for newer Equipment. Due to the amount of capital being awarded is based on a percentage of the Equipment’s auction value, the total sum value the payments if paid in full as agreed will satisfy the agreement and the company can assume take back full ownership.

In essence Equipment Sale Leaseback Financing can be a great way for a business to utilize a piece of equipment that is owned free and clear that is already in use or available for use to provide the business with an infusion of liquid capital all without incurring any additional debt on the business.

Equipment Sale LeaseBack Financing can be a great option for businesses that may not qualify for traditional bank financing or wish to not incur any new debt obligations against the company.

Once the auction value of the piece of equipment being offered is verified, funding for this Asset Based-Lending product can be processed in a short period of time.

Lenders can be flexible in what assets they are willing to finance based off favorable auction value findings.

Since the business will now have monthly leases expense costs there are some potential tax deductions companies could qualify for.

The Depreciation of the product is still taken into consideration in all tax and accounting matters.

Companies could have access to up to 60% of the full owned assets auction value and maintain usage of the equipment to generate additional production.

In order to qualify for this Asset Based-Lending Product a full underwriting must be completed including but not limited to a full appraisal of the Equipment to be used as collateral. The valuation should include the year, make, model, serial/vin number, purchase date(s) current market value and auction value should also be provided.

This product works best for companies that have a minimum of 2 years time in business.

For those pledging most forms of Equipment company must have a decent business credit score and the owners must have a minimum personal FICO Score of 620+. Restaurant Businesses pledging Equipment as collateral may require a higher personal fico score for the owners north of 680+.

For business to qualify for Equipment Sale LeaseBack Financing the company must own the Equipment outright.

Only companies with no open tax liens, judgments, or no open bankruptcies both business and personal are able to qualify for Equipment Sale LeaseBack Financing.

In order for businesses to be eligible for this Asset Based-Lending Product the company must provide the businesses financial statements that indicate that the company can service the lease payments.

More importantly, all lenders will conduct a full UCC lien search to ensure that the Equipment are not subject to a blanket lien in favor of a financial institution or other third party claim such as tax liens. This requires a review of both pertinent security documentation and UCC-1 financing statements.

We have custom-tailored options to meet a company's specific needs. ADC works diligently to provide each client with funding terms that fit their goals.
We pride ourselves on going the extra mile for every client that we work with and excel at delivering the capital they desire to grow their business.
Available Capital Limit

Up to $25mm

Standard Interest Rates or Cost

Rates starting at Prime Plus or Libor Plus

Typical Underwriting TimeLine

5-10 Business days

Average Term Limits

12 to 60 Months

In closing, It is estimated that the U.S Commercial Real Estate Market is somewhere north of $16 Trillion Dollars. Some of the properties on that list are owned free and clear. Those properties that are the companies that control them are basically sitting on a goldmine of untapped liquidity thanks to Commercial Real Estate Sale-Leaseback Financing. While the US Equipment Market is somewhere around $900 billion dollars and growing. Even if only a quarter of those assets are eligible for Equipment Sale LeaseBack Financing that alone could provide billions in capital to those companies that own those assets.

Whether it is a piece of Commercial Real Estate that is being pledged or a piece of Commercial Equipment that is being pledged, either could provide the business with direct access to liquidity when needed without the company having to incur a massive amount of new debt on their books. Our team at AmeriDream Capital is ready to provide your company with access to all of the Sale LeaseBack Financing options on the market. Please apply online, email us for an appointment, or call us today.

Our team is committed to helping your business grow with Sale LeaseBack Financing and will guide you through the funding process each step of the way.

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