There are pluses and minuses to sale and leaseback funding.
Business owners are becoming more sophisticated in the way in which they raise finance, not just through the traditional routes of bank lending but also sources such as factoring and, increasingly, sale and leaseback.
This is where a business sells an asset such as the business premises and then agrees to rent it over a set period. So what will your business gain from a sale and leaseback?
- It can unlock finance that already exists in the business.
- It will boost cash-flow in the short term.
- It can reduce the overheads of maintaining the business premises.
- It enables your business to continue trading without any disruption.
There are, however, pitfalls when opting for sale and leaseback:
- It may take time and effort to find a prospective buyer for the premises.
- Your overheads are likely to go up. You will be subject to rent, possibly service charges or other charges that may be recoverable under the lease.
- Leases may be subject to periodic rent reviews, so your rent may go up over the set period, as with any other lease.
- If there is a rise in property prices, your business will miss out on potential profit on a sale of the premises.
- If you need to upgrade the facilities at the premises or the premises themselves, it may take longer to get the consent of the leaseholder.