5 Reasons a Purchase and Lease-back Arrangement Make Sense for Companies
Companies need to be smarter than ever when it comes to allocating funds and managing their working capital. Often that can come down to how an organization finances its capital expenditures. For companies that have their own truck fleet, making the right financing choice can not only improve the bottom line; it can more importantly free up cash for other investments. Using your money to grow your business should be a top priority. One of the options available is a sale and lease-back transaction.
Late last year, Mike Hamilton, Senior Vice President of Sales and Operations, Capital Equipment Solutions for Corcentric and I wrote an article for HDT Truckinginfo that details this practice, where the owner of an asset sells the asset and leases it back from the buyer. In effect, the seller of the asset becomes the lessee and the buyer becomes the lessor.
What would make a company be a good candidate for this financing option? Here are five examples:
- New truck sales hit a record pace and used truck inventory is still low. Getting out of asset ownership reduces residual risk should the market turn.
- A company with its own maintenance operations acquires another company that has assets under maintenance contracts. A purchase lease-back arrangement can effectively eliminate the operational problem of the outsourced maintenance which they obviously do not need.
- When a company makes a number of acquisitions, it inherits the purchased companies’ assets under a wide variety of financing programs. A purchase lease-back can consolidate all financing under a single structure that will best help the company achieve its operational goals.
- If acquired assets don’t fit the company’s trade cycle, older assets can be disposed of and newer assets purchased, bringing down the average age of the fleet.
- When a company finds itself with more business than its fleet can handle…but delivery dates on new assets are too far out, a purchase lease-back option with the right terms allows the company to purchase used equipment to satisfy near term demand until new trucks are available.
Read the full article to find out when a purchase lease-back does not make sense as well as how this option can help your fleet with lifecycle management