Cash flow issues? A sale and leaseback is a quick and easy solution

Posted on 5th July 2018

Owner occupiers looking to raise cash are turning to alternative options, as traditional funding sources are expensive and difficult to come by. Paul Bagshaw of Rotherhill Developments explains the advantages of sale and leasebacks.

The banks have become increasingly cautious. They are very prescriptive, with long lists of what you must and must not do to meet their tough criteria for borrowing.

Another option, well worth considering, is selling your property and leasing it back from a new owner.

Sale and leasebacks allow owner occupiers the opportunity to free up capital when existing properties are sold and leased back.

They work like this: the business sells its property assets to another party and simultaneously leases them back at a rental rate and lease term negotiated with the new owner.

The advantages of sales and leaseback for owner occupiers

Sale and leasebacks enable a company to redeploy the capital that had been invested in real estate back into its core business.

The money can be used:

  • to pay down debt
  • reduce the amount of interest being paid on borrowings
  • create cash liquidity for expansion or investment in plant and equipment
  • to provide ongoing working capital.

The overall effect is to create security and certainty for all stakeholders, including customers, investors and staff.

A cheaper option for business owners

Sale and leasebacks tend to be a cheaper way of raising capital than attempting to agree traditional bank loans. This is because they allow business owners to negotiate directly with the new landlord, rather than enter protractive talks and onerous form filling exercises with traditional lenders.

By becoming both the lessee and the seller, the owner occupier is in a unique position to ensure the deal reflects their needs. They are more in control of the transaction as they are dealing direct with the landlord – the entity which is providing the funds – and this provides more visibility as to whether or not an agreement can be reached, saving management time and money.

Why sell one of a firm’s main assets to a property specialist?

There are many reasons. Managing property and ensuring it is the right type of premises, in the best location, is no easy feat. And for many business owners it is not one of their core strengths.

By putting your property management into the hands of a real estate professional, whether it be a developer or an investor means you share the same objective: to ensure the premises are the correct fit for your business in order to ensure you are in a position to grow and thrive.

Why not just up and sell?

Some business owners may prefer to sell their existing units and buy new offices or warehousing in a different location.

This, however, is far from simple.

Demand for commercial space in the East Midlands is increasing and remains ahead of the national average. And if the supply shortage continues local companies will be restricted in their growth plans may be forced to look to relocate elsewhere.

Moving business premises is time consuming, expensive and unsettling – and that is assuming you can find somewhere suitable.

In addition, you may be located in buildings that are ideal for your business but are completely unsuitable for anyone else. In this case you will be sitting uncomfortably on a depreciating asset.

Getting a creative minded property investor on board and negotiating a sale and leaseback deal with them could, therefore, be highly advantageous.

Sale and leasebacks offer a great opportunity for cash-strapped businesses to cure their cash flow problems.

Lines of credit, once taken for granted, have begun to dry up – increasing the financial pressures that many companies face.

At Rotherhill Developments we are able to offer owner occupiers 100 per cent of the value of their freehold premises, as opposed to a business mortgage which would likely offer, at most, 75 per cent of the market value.

Talking to us costs nothing and we will create a bespoke solution to suit your needs, rather than adhering to the rigid rules traditional lenders impose.

What’s more, we will make an appointment to see you within 24 to 48 hours and have a proposal to you within a week – a turnaround unrivalled by any bank.

So, if you are an owner occupier looking for a big cash flow boost to enable business growth, come and speak to us and we will see what we can do to help.

For more information please contact Paul Bagshaw, managing director, Rotherhill Developments at paul@rotherhill.com or call 01476  861797.