When is a Sale and Leaseback beneficial to my business?
A sale and leaseback is a financial transaction where a business sells vehicles owned by the business to a leasing company and leases them back. The business continues to use the vehicles but no longer technically own them. The business has freed up capital and credit creating opportunities and financial statement improvements.
Consider restructuring how you have financed your fleet of vehicles if:
- You want to lower your monthly payment.
- You need to add new vehicles and maintain current monthly payment.
- You need to free up capital for growth opportunities.
- You want to remove debt and leverage from your balance sheet.
- You want to reduce your risk of loss in the future.
- You want to change lessors in the pursuit of better service, personnel, or fleet management.
Is your company in one of these situations?
- Paid cash for a fleet of vehicles and own them outright?
- Financed your fleet of vehicles either through term notes or a line of credit?
- Leased your fleet of vehicles and either
- have significant equity in the vehicles,
- want to lower your monthly payment, or
- are upside down or over mileage and want to avoid large losses at the end of the lease?
- Current vehicle leases or financing shows every contract on business owner’s personal credit report?
If yes, a sale and leaseback may be a good option to consider.
- Age of vehicles – if a vehicle is at the end of its life, it doesn’t make sense to include these in the sale-leaseback
- The vehicles will be retitled and re-registered to the new owner (lessor). The lessor generally administers this process.
- Sales tax – if the vehicles are sold to a fleet management company, the new owner (lessor) will generally not incur sales tax. Sales tax is generally paid over the term of the lease. However, if you paid sales tax when you originally purchased the vehicles, you generally will not be double taxed when you lease the vehicles.
- If your fleet or business is growing, you may be overwhelmed with the growing responsibilities of fleet management with limited internal resources. A fleet management firm can assist you with the leasing side of the transaction AND
- Maintenance management and reporting
- Fuel management and reporting
- Telematics and safety technology
- Ordering new/used vehicles
- Upfitting equipment and vinyl decals
- Delivering turnkey vehicles nationwide
- Titling and state change management
- Resale/remarketing vehicles to maximize value
- Driver testing
- Best practices – how long to hold, brand and model selection
- Driver policy – current updates and best practices
- Advisory services when needed
There are many great reasons to do a sale and leaseback of your fleet vehicles. Before embarking on a sale/leaseback arrangement, clearly understand the motivating factors, the benefits to be gained, and the costs involved.
As part of the process, clearly communicate the plan to the stakeholders and clearly state how this will impact them. When your sale and lease back is complete, the next pursuit is Fleet Wellness. For details on how to manage your fleet like the pros (or with the pros), read more on Fleet Wellness here.