What is asset refinance or sale-and-leaseback, and how does it work?
Quick answer
Asset refinance — commonly delivered as a sale-and-leaseback — is a financing technique where a business sells an owned asset to a specialist funder or lessor and then continues to use it by leasing it back. This converts tied-up asset value into immediate cash while retaining operational use of the asset. Best Business Loans helps UK firms understand and locate suitable providers; we do not provide loans directly.
What asset refinance and sale-and-leaseback mean
Asset refinance is any arrangement that lets a business unlock value from owned assets to raise cash without selling the business. Sale-and-leaseback is a common form of asset refinance where ownership moves to a buyer (the lessor) and the original owner remains as lessee under a lease. Typical assets include plant, machinery, vehicles and specialist equipment.
In a sale-and-leaseback the buyer pays the seller an agreed price for the asset and then grants a lease back to the seller for continued use. The lease sets out term, rent, maintenance responsibilities and sometimes options to repurchase. This structure converts fixed capital into working capital or investment funds while maintaining operational continuity.
Sale-and-leaseback is used by established businesses that need cash but cannot or do not wish to raise equity or take on additional traditional debt. It is also attractive where the asset is essential to trading but under‑utilised as collateral for standard loans. Best Business Loans will match UK businesses to lenders or brokers who specialise in these arrangements.
How a sale-and-leaseback transaction typically works (step-by-step)
Step 1: Asset appraisal and valuation. An independent or buyer’s valuer inspects the asset to establish market value and condition. Valuation determines how much cash you can expect to receive and influences lease terms.
Step 2: Negotiation and sale. The business agrees a sale price with the purchaser, often a specialist lessor or funder. Contracts record the transfer of ownership, warranties and any day-one adjustments for condition or existing encumbrances.
Step 3: Lease-back terms. Parties agree lease length, rent profile, maintenance duties, insurance and any buy-back or upgrade clauses. Leases can be operating (off-balance sheet for some accounting regimes) or finance leases (treated like debt under accounting rules), so tax and accounting advice is important.
Step 4: Cash delivery and transition. Funds are paid to the seller at completion and the lessee continues to use the asset under the new lease. The business must budget for recurring lease payments rather than occasional capital expenditure.
Benefits for UK businesses
Immediate cash injection: Sale-and-leaseback releases capital tied up in assets, improving liquidity for working capital, expansion or debt consolidation. This can be faster than arranging a secured loan or new equity.
Operational continuity: You retain use of essential equipment so business disruption is minimal. That makes sale-and-leaseback ideal for manufacturing, logistics and other asset-heavy sectors.
Balance sheet flexibility and potential tax benefits: Depending on lease classification and accounting standards, the transaction can alter reported leverage and return metrics. In some situations, lease payments are tax deductible whereas capital expenditure is treated differently.
Access to specialist funding: Lessor markets often include investors who value residual asset life and industry expertise, which can yield competitive cash offers for specific asset classes. If you need finance for plant or machinery, we can connect you with relevant providers and brokers.
Internal link: If your requirement is equipment-specific, explore tailored equipment funding options here: https://bestbusinessloans.ai/loan/equipment-finance/.
Risks, drawbacks and compliance considerations
Higher long-term cost: Lease payments over the life of the lease may exceed the initial cash raised, making the overall cost higher than alternative finance. Businesses must model total cost versus benefit carefully.
Loss of ownership and resale upside: You surrender ownership, so you lose any future appreciation in asset value. This can matter for specialised or appreciating assets.
Commitment to ongoing payments: Lease contracts create recurring obligations that may constrain cash flow if trading conditions worsen. Early termination or renegotiation can be expensive.
Accounting and tax effects: Lease classification under UK accounting standards (IFRS/UK GAAP) affects how the transaction appears on the balance sheet. Always take professional accounting and tax advice before concluding a deal.
Regulatory clarity and fair marketing: Best Business Loans is an introducer and does not provide finance itself. Any offers from lenders should be clear, fair and not misleading, consistent with FCA and ASA rules for financial promotions.
Is asset refinance or sale-and-leaseback right for my business? Practical checks and next steps
Check 1 — Asset suitability: Consider asset age, remaining useful life and market demand for that asset class. Younger, standardised equipment typically attracts the best sale-and-leaseback terms.
Check 2 — Cash need and use: Define what you will use the proceeds for (working capital, growth, debt restructuring) and how that use compares with the cost of leasing. Model scenarios for 1, 3 and 5 years.
Check 3 — Compare alternatives: Look at asset refinance versus secured lending, refinancing existing facilities, invoice finance or government-backed schemes. Each solution has different speeds, costs and covenants.
Check 4 — Legal and tax advice: Obtain legal counsel to review lease terms and tax/accounting advice to understand balance sheet and tax impacts. Ensure any financial promotion or marketing you see is clear and not misleading.
Next step — Get matched: If you want a quick, no-obligation check of eligibility and likely outcomes, submit a Quick Quote through Best Business Loans. We use AI matching to introduce you to relevant lenders and brokers who specialise in asset refinance and sale-and-leaseback. We do not provide the loans ourselves, and you will stay in control of all decisions.
Key takeaways
- Sale-and-leaseback converts owned assets into cash while allowing continued use of the asset.
- It suits asset-rich businesses needing rapid liquidity but brings long-term lease obligations.
- Compare total cost, tax/accounting effects and alternatives before deciding.
- Best Business Loans can match you to lenders and brokers for impartial, no-fee introductions.
Want to explore whether sale-and-leaseback could free up cash for your business? Complete our Quick Quote form for a fast eligibility check and potential Decision in Principle. It’s secure, confidential and free to submit. Best Business Loans acts as an independent introducer and does not supply or underwrite finance directly.