Sale and leaseback: turning the installed fleet into cash
The company bought equipment in the last two years, spent cash it now needs, and the equipment is there, working, worth money, and tied up. Sale and leaseback solves exactly this situation, and hardly anyone offers it in Portugal.
How it works
The company sells the funder equipment it already owns and receives the agreed value in cash. At the same time, it signs a lease on that same equipment and starts paying a rent for its use. The equipment does not leave the premises and nobody notices the difference day to day.
In practice, it is financing backed by assets the company already has, with the difference that it does not encumber anything or require additional guarantees, because the asset itself changes owner.
When it makes sense
- When a recent investment squeezed cash flow more than expected
- When there is an opportunity with a better return than the cost of the financing
- When cash needs to be freed up without resorting to bank credit or giving guarantees
- When the company wants to standardise the fleet on a contracted renewal cycle
When it does not
When the equipment is already three or four years old. The value a funder places on depreciated IT equipment is low, and the rent you then pay no longer makes up for what you received. The useful window is the first two years of the equipment's life, when there is still significant value to release.
Nor does it make sense as a solution to a structural cash-flow problem. It solves a one-off cash squeeze; it does not solve a business that does not generate a margin. A company that turns to sale and leaseback to pay salaries is buying expensive time, and it is only honest to say so.
Points to watch
- Confirm the value assigned. It is negotiable and varies considerably between funders. It is worth asking more than one for a valuation.
- Check the total cost. Add up all the rents and compare them with the amount received. The difference is the effective cost, and sometimes it is high.
- Confirm the accounting treatment. The transaction involves derecognising the asset and recognising the gain or loss on the sale. It is not neutral in the accounts and has to be prepared with the company's certified accountant.
- Check the inventory. The transaction requires a list of the equipment with serial numbers and purchase invoices. Without an up-to-date inventory, it does not go ahead.
Who does this in Portugal
Fewer entities than you might think. Of the four funders we regularly consult, the infrastructure specialist has the most developed programmes in this area, with experience in putting a value on installed fleets and buying them back. The international funder structures deals of this kind on larger projects.
If the company has recent equipment and needs cash, it is worth at least finding out what it is worth. The valuation costs nothing and commits you to nothing.