Sale and leaseback for limited companies: release cash from plant and vehicles you already own
If your business owns equipment outright, that value is tied up in the asset. A sale and leaseback can turn some of it back into cash while you carry on using the equipment.
The short answer
What it is: your company sells an asset it owns to a lender and rents it back, so you keep working with it and receive cash from the sale. Who it suits: limited companies that own plant, machinery or commercial vehicles outright (or nearly so) and want cash for the business without buying something new. How quickly: it depends on the lender and on how soon the asset can be valued and the paperwork is in order, so we do not promise a timescale. The trade-off: you no longer own the asset, and the rentals are a new commitment.
How it works
- Tell us about the asset.Make, model, age, condition, hours or mileage, and whether it is owned outright. Photos and proof of ownership help.
- We approach suitable lenders.We are a broker, so we discuss your requirement and present it to lenders on our panel who consider this type of deal.
- The lender values the asset.This may be a desktop valuation or an inspection. The sale price is based on that valuation, and is usually lower than what the asset would fetch on the open market.
- You review the offer.The lender sets out the sale price, the rentals, the term and what happens at the end. We help you compare the total cost with your other options.
- Sale and rental agreements are signed.The lender buys the asset and pays you, less any finance that has to be settled. You carry on using the asset and pay the rentals.
An example (illustrative only)
Example: an excavator the company owns outright
- Market value of the excavator
- £120,000
- Sale price offered by the lender
- £84,000
- Rental term
- 36 months
- Monthly rental
- £2,700
- Total rentals over the term
- £97,200
- Cost of the cash released
- £13,200
An example with round numbers, excluding VAT. It is not an offer or a quote. Real sale prices, rentals and end-of-term options depend on the lender, the asset and your business, and are subject to status.
In the example the company receives £84,000 and pays back £97,200, so the cash is not free: the difference is what it costs to release the cash. We would set out these figures for your own asset so you can see the full commitment before deciding.
What happens to finance already on the asset
If the asset is still financed, the lender has an interest in it and the company may not be able to sell it until that agreement is cleared. In practice the existing agreement is usually settled from the sale proceeds. Ask your current finance company for a settlement figure, and send it to us with the asset details.
Only the balance reaches you. In the example above, if £30,000 was still owed, about £54,000 of the £84,000 would be left after settling it. If the settlement figure is close to or above what a lender would pay for the asset, a sale and leaseback is unlikely to release useful cash, and a different route may suit better.
What the lender checks
- Ownership. Proof that the company owns the asset and that no one else has a claim on it, such as invoices, registration documents or a settlement letter.
- Value and condition. A valuation or inspection, which may be done from photos and documents or in person, depending on the lender and the asset.
- The business. Trading history, filed accounts and bank statements, to see that the rentals are affordable. Funding is subject to status.
- Existing security. Any finance or charges over the asset or the company, which may need to be cleared or agreed.
Risks to weigh up
You no longer own the asset
The lender owns it during the agreement. What happens at the end, such as returning it, buying it back or extending, depends on the agreement, so read that section carefully before you sign.
Missed rentals can mean repossession
If the company cannot keep up the rentals, the lender can normally take the asset back. You would lose equipment the business may depend on, and could still owe money.
The cash has a cost
You usually pay back more in rentals than the sale price you received, and the sale price is often below market value. Compare the total cost with other ways to raise the money.
A new monthly commitment
The rentals add to your outgoings and may affect what other lenders are willing to offer. Be sure they are affordable in a quiet month, not just a busy one.
VAT and tax: confirm with your accountant
VAT can apply to the sale of the asset and to the rentals, and the way a sale and leaseback is treated for corporation tax, including any effect on capital allowances, can be significant. We are not tax advisers, so please confirm the VAT and tax position with your accountant before you proceed. Our VAT on asset finance guide explains how VAT works on other types of asset finance.
Who it is not for
If you want to keep ownership
If owning the asset matters to you, a sale and leaseback may not suit. A different structure, such as refinancing an existing agreement, might.
If the asset is not yours to sell
An asset still on hire purchase is not owned until the final payment is made, and a leased asset belongs to the lessor. Neither can usually be sold and leased back without settling the agreement first.
If the cash gap is short term
For a gap caused by slow-paying customers, invoice finance may be a better fit than selling equipment.
If the rentals would be a stretch
If the business could not comfortably cover the extra monthly cost, releasing cash this way could add pressure rather than relieve it.
See also plant and machinery finance, truck and HGV finance and hire purchase vs finance lease vs contract hire.
Frequently asked questions
What is sale and leaseback?
Your company sells an asset it owns outright, such as an excavator or a van, to a lender, then rents it straight back over an agreed term. You keep using the asset and receive cash from the sale. The lender owns it during the agreement, and what happens at the end depends on the agreement you sign.
Which assets can be used?
Typically plant, machinery and commercial vehicles that the company owns outright, or owns with only a small amount of finance left to settle, and that have a clear value. Age, condition, type and how easily the asset could be sold again all matter, and each lender has its own criteria.
How quickly could the cash arrive?
It depends on the lender, how quickly the asset can be valued or inspected, and how quickly the paperwork and proof of ownership are in order. We cannot promise a timescale, but having the ownership documents, a recent photo set and any settlement figure ready usually helps things move.
Will it affect my other lenders?
It can. If an asset is already financed, that agreement normally has to be settled from the proceeds. Other lenders may also hold security over your company, so it is worth telling us about any existing finance or charges at the start. The new rentals are also a new monthly commitment.
Is sale and leaseback the same as a loan?
No. It is a sale followed by a rental agreement, not a loan against the asset, and the lender owns the asset while the agreement runs. Because the legal and accounting treatment can differ from borrowing, speak to your accountant before you decide.
Thinking about releasing cash from equipment you own?
Tell us what the asset is and what you still owe on it, and we will talk through whether it is worth exploring.
Get a Quick Quote →Or call us on 01634 715 690.
Direct Commercial Finance Ltd is a commercial finance broker, not a lender, working with UK limited companies. Finance is subject to status and lender approval.