WHAT IS SALE & LEASEBACK FOR FLEETS?

Currently there are a variety of financing instruments for companies that are aimed at improving cash flow and cleaning up business finances, but when the life of these businesses depends on having a network of fleets to carry out their operations then they require specialized financial products.

Electronic commerce is gaining more and more strength in the country and logistics is becoming a fundamental pillar of business, so having a modern fleet of vehicles is not a luxury, but a necessity.

For this specific need, there are tools that allow companies to acquire vehicles for fleets without affecting the balance sheet, or, if the company already has a fleet, offer them a financial product to free up capital and at the same time reduce the operating costs of their fleet.

The Sale & Leaseback service for fleets is designed for companies that already have a vehicle fleet but need financing to continue growing or meet commitments.

A Sale & Leaseback agreement involves selling your fleet to a company to obtain liquid resources, but at the same time a lease agreement is signed for those same cars, where you only have to pay a comfortable monthly payment to continue using them.

If your assets don’t appreciate in value, like vehicles do, they may do more work for your business if you sell and lease them again rather than own them. By obtaining its total cash value you can budget it properly, and part of the money can be used for rental costs and the rest used to drive the growth of your company.

Sale & Leaseback operation

A Sale & Leaseback agreement involves two parties.

  • The Lessor purchases its vehicles from the company at commercial value (blue book).
  • Vehicles must be no more than 4 years old and in good condition.
  • The landlord makes the down payment and turns it into a pure lease.
  • The car remains at all times in the possession of the company maintaining the use of the vehicles.
  • The company decides the lease term according to how long it wants to keep the vehicles.

The process is the same in any kind of fleet, from cargo vehicles to cars of sales personnel or executives. However, whatever the scenario, you should carefully evaluate whether Sale & Leaseback makes sense for your company.

Importance of financing for my company

One of the main reasons companies fail is because they lack cash flow.

When your business operates with a negative cash flow (it spends more than it comes in cash), you need to satisfy your debts and expenses through other means, such as drawing from your cash reserves. But, if your business continues to operate without bringing in more cash than it spends, it will eventually deplete all cash reserves.

On the other hand, if you have negative cash flow and have no reserves, you run the risk of defaulting on your debts and may need to obtain additional loans or raise capital by other means to avoid losing the business.

There is also the other side of the coin, when your company needs financing to develop new projects, increase its installed capacity, enter new markets, etc. Without financial support it will be difficult to achieve the established goals and even more so when the credit is not adequate and only creates more liabilities on the balance sheet.

Obtaining business financing has become increasingly difficult in Mexico due to the high demands of traditional lenders such as banks, the challenge is greater when the company is a SME or does not have sufficient credit history.

For many companies, especially SMEs, finding the credit to invest in key areas of their business or to finance expansion can be a problem.

One way to raise funds is to make company-owned assets work in your favor, and one of the most important assets for many companies is their fleet of vehicles.

For companies that own their vehicles, a Sale & Leaseback agreement can provide the means to free up cash and reinvest in strategic activities or drive business growth.

Financing without debt

There are two basic ways to finance your business: debt and assets.

Acquiring debt. Apply for a loan or line of credit that provides you with a fixed amount of money and that you must repay within a period of time. Most loans are asset-backed, which means that the lender can take over the assets if you fail to pay.

Selling assets. Sell ​​some assets to finance yourself, especially those that you can get the most out of, for example, vehicles. If you decide to sell your assets, you will get a debt-free cash flow, which will be positive for the financial balance of your company.

If after analyzing the financing needs and current finances of your company you have come to the conclusion that you do not want to acquire more debt, the sale of assets can be a healthy option, especially for those assets that carry a high operating cost, such as the fleets of cars.

Sale & Leaseback benefits

The most important benefit of the service is the immediate creation of cash flow, which is quite useful for accounts payable, meeting payroll, dealing with unforeseen expenses, etc. But it also serves as a project financing tool to boost business growth.

There are more reasons why you should hire a Sale & Leaseback:

  • Immediate cash injection

The key advantage of Sale & Leaseback agreements is that they provide an immediate cash injection into the business, while eliminating the risk of fluctuations in the future value of the asset.

As it is a paper-only transaction, your company continues to use the vehicles throughout the transfer process and there are no hassles or interruptions to day-to-day operations.

  • Off-balance sheet financing

An additional advantage is that it allows you to eliminate highly depreciated assets from the company’s balance sheet; improving key accounting ratios and potentially making it easier to secure additional lines of credit.

Because it is not a loan, your company does not incur debt or affect credit quality.

  • Simplified budget

Sale & Leaseback helps make fleet budgeting much easier, as all costs are generated based on fixed lease payments and have a known value with no hidden or unexpected charges.

  • Reduced risk

Another advantage of selling your fleet is that the seller will also eliminate an element of risk for the company. By selling the vehicles and transitioning to the lease, you have effectively passed the responsibility for the depreciation of the vehicle to the leasing company.

  • Vehicle maintenance options

Sale & Leaseback contracts typically include a maintenance package, along with a number of other fleet management services, such as accident management, short and medium-term car rental, driver training and breakdown assistance. .

Pure leasing for fleets

Because the Sale & Leaseback scheme is under a lease, you can reduce your tax burdens and enjoy the many benefits that pure lease offers for your fleet.

The benefits of leasing vehicles for your fleet have a lot to do with the type of lease. In Mexico, the two main leases are financial and pure, both share the following characteristics:

  • Down payment is not paid.
  • Depreciation will not be a concern.
  • The company will be able to renew its vehicles constantly.
  • Leasing expenses are tax deductible.
  • The cost of the car rental is fixed and you will not have to worry about interest.
  • If you want to purchase the vehicle at the end of the contract, you will only have to pay a difference.

What is more convenient, pure or financial leasing?

Both types of leasing work quite well and have tax benefits, you simply have to evaluate what type of property you want to lease. In the case of vehicles, the pure lease is convenient since you have the option at the end of renewing the car and not carrying the depreciation of the property.

The advantage of the pure lease over the financial one is that vehicle rentals are a 100% deductible amount and are recorded in your financial statements as an expense, not as a liability.

In the case of pure leasing, the Income Tax Law considers that the monthly payments made by the company are tax deductible operating expenses since, formally, the asset is not purchased at the end of the period, although sometimes it does.

In the case of pure leasing of vehicles, article 28 section XIII indicates that since there is no acquisition, but there is an expense, this is deductible with a limit of 200 pesos per day for leasing, and 285 pesos per day for electric vehicles or hybrids.

S&LB Express

At Crédito Real, we are launching a S&LB Express product that allows companies to obtain much-needed liquidity at all times. It is express because we optimize processes in order to provide liquidity in the shortest time possible, in approximately 15 business days, depending on the client submitting their complete file. Approach the specialists.

 

by Abdullah Sam
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