what is a leaseback 
a leaseback is an arrangement in which the company that sells an asset can lease back that same asset from the purchaser with a leaseback also called a sale leaseback the details of the arrangement such as the lease payments and lease duration are made immediately after the sale of the asset in a sale leaseback transaction the seller of the asset becomes the lessee and the purchaser becomes the lessor a sale leaseback enables a company to sell an asset to raise capital then lets the company lease that asset back from the purchaser in this way a company can get both the cash and the asset it needs to operate its business understanding leasebacksin sale leaseback agreements an asset that is previously owned by the seller is sold to someone else and then leased back to the first owner for a long duration in this way a business owner can continue to use a vital asset but ceases to own it another way of thinking of a leaseback is like a corporate version of a pawnshop transaction a company goes to the pawnshop with a valuable asset and exchanges it for a fresh infusion of cash the difference would be that there is no expectation that the company would buy back the asset who uses leasebacks and why the most common users of sale leasebacks are builders or companies with high cost fixed assets like property land or large expensive equipment as such leasebacks are common in the building and transportation industries and the real estate and aerospace sectors companies use leasebacks when they need to utilize the cash they invested in an asset for other purposes but they still need the asset itself to operate their business sale leasebacks can be attractive as alternative methods of raising capital when a company needs to raise cash it typically takes out a loan incurring debt or effects an equity financing issuing stock a loan must be repaid and shows up on the company s balance sheet as a debt a leaseback transaction can actually help improve a company s balance sheet health the liability on the balance sheet will go down by avoiding more debt and current assets will show an increase in the form of cash and the lease agreement although equity does not need to be paid back shareholders have a claim on a company s earnings based on their portion of its stock a sale leaseback is neither debt nor equity financing it is more like a hybrid debt product with a leaseback a company does not increase its debt load but rather gains access to needed capital through the sale of assets example of a leasebackthere are numerous examples of sale leasebacks in corporate finance however a classic easy to understand example lies in the safe deposit vaults that commercial banks give us to store our valuables at the outset a bank owns all of the physical vaults in its basements the bank sells the vaults to a leasing company at market price which is substantially higher than the book value subsequently the leasing company will offer back these vaults to the same banks to rent on a long term basis the banks in turn sub lease these vaults to us its customers more benefits of leasebackssale leaseback transactions may be structured in various ways that can benefit both the seller lessee and the buyer lessor however all parties must consider the business and tax implications as well as the risks involved in this type of arrangement 