When a company needs to raise capital, it may consider selling its assets and leasing them back from the buyer. This type of transaction is known as a sale-leaseback. Another option that some companies may consider is a synthetic lease. This blog post will explore the differences between sale-leaseback and synthetic lease. Their benefits and drawbacks, and some examples of how they’re used.


A sale-leaseback is a financial transaction in which a company sells an asset, such as a building, to a buyer and then leases it back from the buyer. The buyer becomes the owner of the asset, while the seller becomes the tenant. The leaseback agreement typically includes a set term, rent payments, and other terms and conditions. Sale-leaseback can be used for a variety of assets, such as real estate marketing company, equipment, or vehicles.

Benefits of Sale Leaseback:

Immediate cash flow: Sale-leaseback provides the seller with an immediate source of cash. Which can be used to fund other business activities, such as expansion or debt repayment.

Retention of use: The seller can continue to use the asset even after it has been sold. As the buyer becomes the landlord.

Tax benefits: The seller may be able to deduct the lease payments as an operating expense, reducing their taxable income.

Drawbacks of Sale Leaseback:

Higher cost: The seller may end up paying more in lease payments over the long term than the asset is worth.

Loss of ownership: Once the asset is sold, the seller loses ownership and control over it.

Example of Sale Leaseback:

A company owns a large warehouse that is worth $10 million. The company needs cash to fund expansion but doesn’t want to sell the warehouse outright. Instead, it enters into a sale-leaseback agreement with a buyer. Who purchases the warehouse for $10 million and leases it back to the company for a term of 10 years, with annual rent payments of $1 million.

Synthetic Lease:

A synthetic lease is a financing arrangement that allows a company to finance an asset without recording it on its balance sheet as a liability. It’s called “synthetic” because it mimics the structure of a lease but is treated as a loan. The asset is owned by a special-purpose entity (SPE) that is created solely for this purpose. The company then leases the asset from the SPE for a set term, typically between 5 to 10 years.

Benefits of Synthetic Lease:

Off-balance-sheet financing: Synthetic lease allows a company to finance an asset without recording it as a liability on its balance sheet. This can improve the company’s financial ratios and make it more attractive to investors.

Tax benefits: The company may be able to deduct lease payments as an operating expense, reducing their taxable income.

Drawbacks of Synthetic Lease:

Higher cost: Synthetic leases may have a higher cost than other forms of financing, such as a traditional loan.

Risks: The company may be exposed to risks associated with the SPE, such as default or bankruptcy.

Example of Synthetic Lease:

A company must acquire a new production facility costing $10 million. Instead of taking out a loan or paying cash. It creates an SPE that purchases the facility and leases it back to the company for a term of 7 years, with annual lease payments of $1.5 million.


Sale-leaseback and synthetic lease are both financing options that can help companies raise capital while retaining the use of their assets. Each option has its benefits and drawbacks. The choice between the two will depend on the company’s specific needs and financial situation. It’s important to work with experienced professionals when considering these types of transactions to ensure that they’re structured properly and all legal.

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