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Hello
Why is an asset sold and then leased back (as a finance lease)? If the asset is sold to the buyer, then why would the seller pay back to use his ‘own’ asset again through a lease?
It releases working capital. Instead of having $5m locked up in the form of property, sell and lease back. $5m is immediately available to use to ease working capital pressures or for use in expanding inventory range, extending credit to customers in an effort to gain market share, pay off long term debt that is maturing
All sorts of reasons!
Maybe just something as simple as forecasting that the property market is experiencing overvaluation and we expect the bubble to burst
OK?
Oh it’s an alternative way of taking a loan.. but on the long term is it as profitable as it looks ?Or is it just get money in the business when the business is not doing well? Or do companies actually sell and lease back just because it’s a common practice and not because it has liquidity or any other issues?
Because after the payment of the long term obligation with interest it comes down to nearly twice as much as the fv of the asset even if its over 5 to mayb 10 yrs..I believe that companies actually do do this. Personally I have had no experience of any of my former clients indulging in a sale and lease back but, as a way of releasing equity which is otherwise tied up and with which you can do nothing …. then it seems to be quite appropriate
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