Sale and Leaseback

A sale and leaseback is a transaction where a business sells an asset it owns outright (or with significant equity) to a finance provider and simultaneously enters into a lease agreement to continue using that asset. The business receives cash for the asset sale while retaining the operational use of the asset through the lease.

Sale and leaseback is used for vehicles, plant, machinery, equipment, and commercial property. It is particularly useful for businesses that need to release capital tied up in owned assets without disrupting operations. The lease payments are typically fully tax-deductible as a business expense (unlike the original purchase, where only capital allowances were available).

The main risk of sale and leaseback is loss of ownership - the asset is no longer an owned business asset, and if the business fails to maintain lease payments, the finance company can repossess it. The lease term and rental should be structured so that payments are affordable from operating cash flow without stress.

Example

A printing business owns a press worth £150,000, bought outright. It sells the press to an asset finance company for £140,000 and leases it back over 3 years at £4,500 per month. The business receives £140,000 in cash immediately and retains full use of the press.

Related terms