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How sale and leaseback is providing vital business funding

05/05/2020

As businesses take different approaches to boosting cash flow in light of the uncertainty and challenges caused by the COVID-19 pandemic, it is interesting to see Sky News report that retail giant Next are the latest company to consider sale and leaseback.

In reportedly looking to sell three warehouses in Doncaster and its headquarters in Leicester to property investors whilst securing long leases on the properties, they are taking the pragmatic approach to release tens of millions of pounds in cash whilst ensuring they can continue to use those buildings.

With their most extreme stress scenario reportedly showing a £1 billion fall in sales – equivalent to a quarter of its annual revenue – and the long-term picture so unclear, they appear to be moving quickly to maintain vital access to cash so they can adapt to the challenges being posed by the pandemic and social distancing restrictions.

What is sale and leaseback?

Sale and leaseback enables businesses to sell property, such as offices, factories and warehouses, to investors while retaining occupancy by way of a lease agreement.

The business benefits from unlocking large amounts of cash to improve its cash flow and being able to use that cash for a multitude of purposes, while disposing of the asset and liquidating it. A lease agreement enables the business to keep using the property in return for fixed monthly payments for a term that suits both parties.

In addition to the cash boost sale and leaseback provides, it allows businesses to stay in an environment that works for them – one which may have been modified to suit them – and avoid the unnecessary costs associated with relocation.

Is it right for my business?

There are a number of scenarios in which sale and leaseback can represent the most suitable option to help businesses unlock the cash tied up in a significant asset, whether it’s to overcome the challenges brought on by COVID-19, to improve their debt-to-equity ratio or avoid the need to relocate.

It is therefore proving an attractive proposition for many businesses across a wide range of sectors currently.

We have helped a number of businesses to secure sale and leaseback facilities in our 23 years as an independent commercial finance broker, including this Scottish retailer. Not only did their new facility allow them to continue trading from their prime, town centre location, the lease period that accompanied it provided much needed comfort and security for the business.

To explore whether sale and leaseback is suitable for your business in the current climate, call our team on 0800 9774833 or complete the form below.

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