Sale and leaseback unlock cash from kit you already own

What is sale and leaseback?

Sale and leaseback is a way to raise cash from equipment or vehicles your business already owns: you sell them to a finance provider for an agreed sum, then pay to keep using them over a fixed term. With sale and HP back, ownership passes back to you once the final payment is made.

Many businesses are asset-rich and cash-poor. Years of buying machines outright or paying off finance can leave hundreds of thousands of pounds sitting in the yard while the bank account runs tight. The British Business Bank describes asset refinancing as a way to free up cash by using assets you already own as security, and notes it's sometimes called sale and leaseback because ownership transfers to the lender while you keep using the asset.

It often works when other borrowing doesn't. A lender funding against a valuable, saleable machine is relying mainly on that asset, so businesses that have been turned down for an unsecured loan, are newer, or have had a difficult year may still find options. That doesn't mean approval is guaranteed: lenders still check affordability and credit history, and the cost may be higher than mainstream borrowing for weaker profiles.

Sale and leaseback is one form of asset refinance. If your focus is vehicles or heavy plant, see vehicle refinance and plant and machinery refinance. Our guide Can I refinance equipment I already own? walks through the basics.

Key features

What businesses use it for

• Working capital after a slow season
• Funding a VAT or corporation tax bill
• Taking on a large new contract
• Replacing several short-term loans
• Releasing equity after paying kit off
• Bridging a gap while waiting for payment

Sale and leaseback vs sale and HP back

How much can you raise?

Lenders advance a proportion of what they think the asset is worth today, so a margin is left in case they ever need to sell it. The British Business Bank's worked example shows a business refinancing an oven worth £20,000 for around 70% of its value, with the new lender settling the small amount still owed on the old hire purchase. In practice, the figure depends on the asset type, age, condition and resale market, plus any finance still outstanding.

Assets with a strong second-hand market, such as plant, HGVs, trailers, vans and mainstream production machinery, are generally easiest to refinance. Bespoke fit-outs, IT and kit fixed into buildings are usually harder. A lender may want a valuation or inspection before making an offer.

Tax: there are two sides to the deal

HMRC's Business Leasing Manual describes sale and leaseback as a way of refinancing existing borrowing or raising general business finance, and points out that there are two parts to the transaction: the sale and the leaseback. The sale can create a disposal for capital allowances purposes, and GOV.UK notes that if you sell an item after claiming the Annual Investment Allowance, you may need to pay tax.

Capital allowances legislation also contains specific anti-avoidance rules for sale and leaseback, and these can affect what you or the lender can claim. The rules are technical, so please speak to your accountant before you commit.

When it may not be the right answer

Releasing cash from assets is a good fit when you have a clear use for the money and a realistic plan to repay it. It's not a fix for a business that's losing money month after month, and taking on new debt in that position can make things worse. If repayments are already a struggle, free, confidential help is available from organisations such as Business Debtline, and our guide on what happens if you can't repay a business loan explains the options.

What lenders typically look at

• An asset list: make, model, year, serial numbers and hours or mileage
• Proof of ownership, or settlement figures for any existing finance
• Business bank statements, typically the last three to six months
• Latest accounts and management accounts if available
• A short explanation of what the funds are for
• Director or owner details for identity and credit checks