Unlocking Business Growth: The Rise of Sales Leasebacks in Small Business Financing
Chelsea Mandel and her firm Ascension Advisory are pioneering a new way for small business buyers to finance their acquisitions through sales leasebacks, a tactic typically used by private equity firms. With a mission to help small business owners access the $17 billion a year sales leaseback market, Mandel is on a quest to find the right deals that can make this financing strategy a reality.
Sale leasebacks involve a business selling its assets, such as property or equipment, and then leasing them back to continue operations. This method allows businesses to unlock cash tied up in their assets for growth or other investments, while also providing tax benefits. Mandel’s strategy involves leveraging the property that comes with a business to finance the purchase, allowing buyers to acquire a business without putting up any initial capital.
One success story from Ascension Advisory is Brian Dennis, the founder of Dennis & Co., who added a new dealership location to his portfolio without any upfront costs by utilizing a sales leaseback. By leveraging the property value, Dennis covered the entire acquisition cost, highlighting the benefits of this financing method.
While sale leasebacks are not new, they are gaining popularity in the middle and lower middle market, driven by private equity funds. Mandel believes that aspiring small business owners should consider this creative financing option to enter the world of business ownership. However, finding the right deal that can be financed through a sale leaseback is like finding a needle in a haystack, according to Mandel.
Despite the potential benefits of sale leasebacks, there are risks involved, as seen in cases like Art Van Furniture and Red Lobster, where overleveraging through sale leasebacks led to financial troubles. Mandel emphasizes the importance of basing the deal on the merits of the real estate and the company being acquired, rather than solely for financial engineering purposes.
As Mandel continues her mission to help small business buyers access the sales leaseback market, the key remains in finding the right opportunities that can make this financing strategy a success. With her expertise and experience in real estate finance, Mandel is paving the way for small businesses to leverage sales leasebacks for growth and acquisition.