What is Sale & Leaseback Financing

Gradual self-financing is one way to finance a subscription model for product subscriptions in a product-as-a-service business model. Other options include:

• Gradual self-financing
• Special Purpose Vehicle (SPV)
• Bank loans or equipment leases
• Manufacturer/supplier partnerships
• Revenue-based financing (RBF)

What is Sale & Leaseback?

In a sale & leaseback, you sell your physical products (equipment, devices, vehicles, furniture) to a financier or leasing company for immediate cash, then lease the same assets back so you can keep using them for your subscribers. You convert a big upfront cost into a stream of lease payments that can be aligned with subscription income.

• This smooths cash flow and can lighten your balance sheet intensity (specific accounting treatment depends on your standards and lease type).
• In equipment finance practice, it can provide up to 100% of the asset’s value as cash—sometimes more effective than a traditional loan that might cap at a lower loan-to-value.

Trade-off: You take on lease payment obligations and must ensure subscription revenue covers them over time.

How it works (step by step)

• Identify assets: New purchases or stock you already own.
• Sell to lessor: The leasing company pays you (often up to 100% of appraised value).
• Leaseback contract: You sign a lease (term, monthly payment, end-of-term options).
• Keep using the assets: You deploy them to subscribers as before.
• Make lease payments: Typically monthly; may be fixed, stepped, or seasonal to match revenue.
• End of term: Return, renew, or buy the assets at a residual/fair market value, depending on the contract.

Why teams choose sale & leaseback

• Immediate liquidity: Turn owned stock into cash to fund growth, repairs, or new cohorts.
• High advance rate: Up to 100% of asset value (subject to appraisal and lessor policy).
• Cash flow matching: Convert capex into predictable opex tied to subscriber income.
• Capacity to scale: Easier to finance more units once a structure is in place.

What to watch (trade-offs)

• Payment burden: Fixed lease payments can squeeze margin if utilisation drops or prices change.
• Contract rigidity: Early termination, under-utilisation, or excess wear can trigger fees.
• Operational duties: You usually handle maintenance, insurance, and loss; check who owns residual risk.
• Accounting & covenants: Balance-sheet and ratio impacts vary by standard (IFRS/GAAP) and lease type; covenants may limit asset sales or require reporting.
• Future financing stacking: Ensure your lease terms play nicely with any line of credit or SPV you plan to add.

Where it fits

• Strong for asset financing, especially when you already own stock and need immediate liquidity.
• Lets you turn big upfront costs into a monthly expense that aligns with subscription cash inflows.

When it’s a poor fit

• If lease payments would squeeze your margin or utilisation is uncertain (seasonality, unproven demand, high return rates).

FAQs

Can I do sale & leaseback on used assets I already own?
Yes—common for unlocking cash from an existing fleet, subject to age/condition limits.

Will this keep assets off my balance sheet?
Depends on accounting rules and lease type. Economically, it turns capex into predictable payments and improves liquidity; talk to your accountant about presentation.

Can payments be seasonal to match demand?
Often yes. Lessors may offer seasonal or step-up schedules to match your revenue curve.

Can I mix this with other financing?
Yes. Many teams pair sale & leaseback for assets with RBF or a working-capital line for CAC and operations.