Sale and leaseback and asset refinance: raising cash from what you own

Sale and leaseback is an arrangement where a business sells an asset it owns to a funder and then leases the same asset back to keep using it. You receive cash up front and make regular payments for the continued use of the asset.

The British Business Bank uses the related term asset refinance. It describes this as a method of freeing up cash from assets in your business that you already own, and notes that it is sometimes called a sale and leaseback agreement.

The asset stays in your yard, workshop or premises. What changes is who owns it, and the payments you make for it.

Asset refinance works by turning a tied-up asset into working cash: the funder values the asset, pays you a sum against it and you repay that sum over an agreed period while continuing to use the asset. The British Business Bank says these arrangements are typically set up as a finance lease or a lease/hire purchase deal.

• Valuation: the funder assesses the asset you own and what it is worth.
• Sale or charge: the funder buys the asset or takes the rights over it as part of the agreement.
• Cash to you: you receive the agreed sum for use in the business.
• Repayments: you make regular payments over the agreed term.
• The end: the British Business Bank says you usually take ownership of the asset when the deal ends, because you have repaid the sum lent to you by the lender.

Financing new equipment pays for something you are acquiring, while asset refinance raises money against something you already own. Both can use leasing or hire purchase structures, but they solve different problems.

If you are buying new kit, see our guide to equipment finance and leasing. If the choice is between lease types, read finance lease vs operating lease.

Assets that have a clear resale value and that you own outright are the usual candidates, and the funder decides what it will accept. Examples a business might consider include the following.

• Plant and machinery, such as production equipment or tools.
• Commercial vehicles, including vans and larger fleets.
• Specialist or sector equipment that holds its value.
• Property, which is a separate market and is covered by commercial mortgages and similar products.

Ownership matters. If the asset is already subject to finance or security held by another lender, the arrangement may need that lender’s involvement. Sector pages such as manufacturing and transport and logistics show the kind of kit businesses tend to hold.

Asset refinance can make sense when a business is asset-rich and cash-poor and needs money without selling the asset outright. A funder is looking at the asset’s value and your ability to make the payments, not only your trading history.

• You own valuable kit outright and need working capital. Our guide to what working capital is explains how to size the gap.
• You need to fund a specific project and want to keep the asset in use.
• A cash gap is expected to be temporary, and the business can afford the payments.

Before you agree, ask what you will pay in total, who owns the asset during and after the agreement and what happens if you need to end it early. Those three answers show you the real cost and the real commitment.

• What is the total amount repayable, and over what term?
• Who holds legal title to the asset during the agreement, and what is the position at the end?
• Who is responsible for maintenance and insurance?
• What are the charges for settling early or for missed payments?
• Is a personal guarantee or any other security required?
• Is any other lender already secured on the asset?

A good provider will answer these in writing. If an answer is vague, treat that as information about the deal.

The main risk is that you take on a repayment commitment secured on an asset your business needs to operate. If you cannot keep up with payments, the funder may take the asset back, which could stop the business trading.

• You are borrowing against the asset, and the cash has to be repaid with charges.
• Missed payments can lead to repossession and can damage your credit file.
• A director may be asked for a personal guarantee, which puts personal assets at risk.
• Using the money to cover continuing losses only delays the problem.

Read our guide to personal guarantees for business loans before you agree to one.

Tax and accounting treatment depends on how the deal is built, so take advice before agreeing. One point from GOV.UK is worth knowing: you cannot claim plant and machinery capital allowances on things you lease, unless you have a hire purchase contract or long funding lease, because you must own the items.

Selling an asset can also have tax consequences for the business. Our guide to capital allowances explains the basics of how claims work, but not how to treat your particular sale.

The alternatives include a secured loan against the asset, other kinds of asset finance and unsecured borrowing. Each trades cost, security and flexibility differently.

• Secured business loans use an asset as security without a lease structure.
• Asset finance covers leasing and hire purchase more widely.
• Invoice finance is worth comparing if the gap comes from customers paying slowly.

Compare more than the headline cost: look at total repayable, the term, early settlement terms and what happens if you miss a payment. Our guide on how to compare lenders is a good checklist.

Capzy is a credit broker, not a lender, and is paid by the lender. We introduce businesses to asset finance providers, which you can browse in our lender directory, and set out what comes back so you can compare it.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria.