Financing Spotlight: Sale and Leaseback

Congrats! You bought a semi truck and maybe even an accompanying trailer or bed. This is a great way to make money, especially as an owner-operator. Purchasing a semi truck is a huge financial decision, but one that comes with many benefits. Since it is such a large financial investment, how do you finance it? Being an owner-operator of a semi truck is quickly becoming a popular career, due to the flexibility it grants semi truck owners. Nevertheless, after purchasing a semi truck and finding you want to move on from ownership but still use the vehicle, what do you do? One way of doing so is with a sale and leaseback of the semi truck, including the bed and trailer. So, what is sale and leaseback? What kind of agreement is it? We’ll go through exactly what this type of transaction is, as well as some sale and leaseback transaction examples.

What Is Sale and Leaseback?

So, what is sale and leaseback? Generally, this type of agreement involves a seller selling a product with the agreement that they can still use the product when it’s owned by a new owner. Let’s apply this to semi trucks. If you find you don’t want to own your semi truck anymore, but still want to use it, you can enter into this type of transaction with a new buyer. This way, you can still use the vehicle, even after you’ve sold it to the new owner. In such an agreement, you can also agree to lease back the vehicle for a reduced price, rather than renting it for full price. With this type of agreement, there are both pros and cons. However, if you still have use for the semi truck, these transactions are highly worth considering.

Pros and Cons of Sale Leaseback Transactions

A sale leaseback transaction requires the new owner to insure the lessee (former owner). There are many other considerations to think through when deciding if this type of transaction would work for you. You can also lease back other semi truck equipment.

Pros

Fast Cash

Of course, semi trucks don’t come cheap. A new semi truck can reach almost $200,000, so purchasing one is certainly a significant financial investment. If you find you don’t want to own a semi truck, you can quickly sell it and negotiate the terms of your ability to continue leasing it.

Ease Up on Debt

When buying a semi truck, it’s rare to have what they cost readily available in cash. Purchasing any vehicle usually means taking out some form of loan to be able to buy it. So, by entering a sale/leaseback transaction, you can quickly recuperate some or most of the cash it cost you to initially buy the vehicle, without losing access to using it. Buying a semi truck is a huge financial investment and often requires you take out a large loan. Sale/leaseback transactions considerably ease the burden of this investment while you can still retain access to the truck.

Cons

Now that you’ve heard the advantages of a sale leaseback transaction, let’s briefly review the cons.

Losing Access to Vehicle

This might seem obvious, but this point is good to review. When you enter into one of these transactions, you can potentially lose access to the vehicle. While you are leasing it, the contractual term will eventually end and the new owner might have other plans for the vehicle, which ultimately results in the inability to use the vehicle. However, this can be circumvented with a longer lease term.

Managing Stakeholders

You might already be leasing your semi truck to professional fleets or other companies. In this case, if you intend on entering into a sale leaseback transaction, you need to inform the lessees who are stakeholders in your semi truck. If you sell your semi truck to a new owner, it might be difficult for the new owner to coordinate existing leases with their intended clients, if the new owner even accepts an already-leased vehicle. 

Since we’ve reviewed some pros and cons of sale leaseback transactions, let’s go through some specific transaction examples. 

Sale and Leaseback Transaction Examples

Sale and leaseback transaction examples help semi truck owners see if such a transaction is right for them. Plainly put, a sale and leaseback involves the former owner of a vehicle still being able to use the vehicle, and the new owner being responsible for insuring the vehicle and its upkeep. The details of the contract are up to the seller and buyer to agree on, and specifics can vary widely across different sale and leaseback transactions. Sale and leaseback transactions are also popular in the real estate setting. For example, in the terms of sale, a former owner of an apartment building can rent one of the apartment units, perhaps at a reduced price. Sale and leaseback transactions can work great for all parties involved, depending on the terms of the sale and how quickly the seller would like to find a new owner and sell the vehicle.

All in all, sale leaseback transactions have a lot of advantages that allow the former owner of a semi truck to still retain the ability to use the vehicle under a lease agreement. Ownership of a semi truck is a big responsibility, so this transaction is a great way to alleviate the financial commitment of owning a semi truck. As a new lessee, you don’t have to worry about insurance, general upkeep, or even depreciation over time. With a sale and leaseback transaction, you get to enjoy the influx of cash and ability to continue using the vehicle under the terms you set in the agreement.