Leaseback financing is a financing option available to commercial property owners, allowing them to gain access to capital without disrupting their infrastructure or operations. Leaseback agreements typically involve a selling company with a need to improve its financial standing. In order to do this, the business will sell an asset, typically commercial property, and then lease the asset that was just sold. Both sellers and buyers experience many benefits when participating in this financing method.


Buyer Benefits


Entrepreneurs, venture capitalists or real estate investors who are looking for low-risk investments with predictable returns will benefit from leaseback financing. Lease agreements often last twenty to thirty years, meaning that buyers also benefit from any property appreciation that occurs. The terms of the lease are often highly customizable; this financing option allows for the lease to be a non-traditional document. This ensures that the buyer can both protect their newly acquired asset while guaranteeing high returns on their investment.


Before engaging in this type of transaction, extensive research is typically done on behalf of both parties. Financial stability is often necessary for both the buyer and the seller. This allows for a secure lease agreement for the seller, while the buyer enjoys a low chance default or missed payments. Buyers have the added benefit of being able to evict the seller and terminate the lease in order to gain access to the property.


Seller Benefits


Some businesses might be reluctant to relinquish assets like property. There are many reasons why a seller may choose to engage in this financing option. The most common reason is when a business needs to gain access to the capital that was previously bound in a commercial property. A standard sale leaseback allows the seller to continue operations while enjoying the liquidity provided.


Many business financing options are structured in a way that make it difficult for businesses to obtain funding or maintain long term payments. The need for a high credit score, balloon payments, and financing costs often limit the ability to access cash, impeding growth and opportunity. With leaseback financing sellers can skip fees and costs associated with many traditional financing options.


There are many motivations for businesses or corporations to participate in leaseback financing. Sellers gain liquidity necessary for them to continue their business operations in already existing infrastructure, while buyers obtain assets that are financially appealing in properties and long-term leases. This low-risk investment tool can be valuable in many situations for a variety of reasons.