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    Frölingstraße 15 - 31
    61352 Bad Homburg v. d. Höhe
    Germany
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Sale-and-lease-back for companies

Sale-and-lease-back: Gaining liquidity in the short term

In certain situations, sale-and-lease-back - a special form of finance leasing - can be of interest to small and medium-sized enterprises, but also to large companies. Especially if they want to release capital in the short term and take advantage of the benefits of leasing.

What is Sale-and-lease-back?

Sale-and-lease-back is in principle a type of finance lease. Classic finance lease follows this process: Deutsche Leasing, the lessor, orders the desired object such as a machine, a vehicle or IT equipment directly from the supplier. It is delivered to the customer, the lessee, and the customer receives rights of use for the object. In return, he pays - depending on the contract - a continuous, predictable leasing instalment. In the sale-and-lease-back procedure, the company buys the desired investment object directly from the manufacturer or supplier, sells it to the leasing company and leases it back from the latter. In this way, it can continue to use it for a fee. A company can also sell used investment objects or real estate to the leasing company and lease it back. The customer is thus both supplier and lessee in one for Deutsche Leasing. According to the Federal Association of German Leasing Companies, the share of sale-and-lease-back in new leasing business has been around 5 percent for years.

Why do you use Sale-and-lease-back?

For some companies this subtype of finance lease is particularly suitable. In two cases, the sale-and-lease-back advantages are evident:

  1. On the one hand, the advantage for a company is that it can raise hidden reserves and gain liquidity in the short term through sale-and-lease-back. In this case, the company, the lessee, sells a used object to Deutsche Leasing, the lessor, and leases it back for a fee for further use. This also enables the company to improve its balance sheet ratios and balance sheet structure. If it uses the released capital to reduce debt, for example, it reduces its balance sheet total and thus increases its equity ratio. The company can still use the leased object, but no longer needs to capitalize it in its balance sheet because it is assigned to the lessor.
  2. On the other hand, sale-and-lease-back may be appropriate in the case of special orders and complex leasing objects, such as unsusual commercial vehicles with special bodies from different suppliers, where several leasing agreements would be necessary. In such cases, Deutsche Leasing, the lessor, may no longer be able or willing to enter into the original customer order with the supplier for reasons of ownership law. In such cases, the sale-and-lease-back procedure can be used to simplify matters.

How does accounting for sale-and-lease-back work in Germany

Just as with classic finance leasing, after the sale the leased object is no longer capitalised in the balance sheet of the customer, the lessee, but of the leasing company. Depending on the structure of the agreement, the lessor is both the civil law and economic owner of the capital asset if he complies with the parameters described in the leasing decrees for this purpose, which essentially concern the term and the regulations at the end of a leasing agreement. The leased asset is therefore not recognised in the balance sheet of the lessee.

In addition, the customer can deduct the leasing instalments and special leasing payments in full as operating expenses for tax purposes. A prerequisite for this is always that the company prepares its accounts in accordance with the German Commercial Code (HGB) and not in accordance with the International Financial Reporting Standard IFRS. In the latter case there are some special regulations to be observed.

Advantages of sale-and-lease-back

  • Free up liquidity in the short term: By selling a new or used capital good, you can raise hidden reserves lying dormant in machines or equipment, strengthen your equity capital and thus protect your credit lines. At the same time, thanks to leasing, you can continue to use the asset for a fee.
  • Spare your balance sheet. With sale-and-lease-back you enjoy the advantages of leasing. Your balance sheet is not affected by the leased object.
  • Deduct leasing payments from tax: Leasing instalments and special leasing payments can be claimed as business expenses for tax purposes.