Sale and leaseback – a simple alternative to bank loans

Since October 2021, during ten monthly meetings, the Monetary Policy Council has raised the benchmark interest rate by 640 basis points.

A natural consequence of increasing interest rates is growing WIBOR, and hence – loan installments.

Since October 2021, during ten monthly meetings, the Monetary Policy Council has raised the benchmark interest rate by 640 basis points. The recent increase was announced on 7 July 2022. Are interest rates going to increase even more? Most certainly the next increase in interest rates will be announced during the decision-making meeting of the Monetary Policy Council scheduled for 7 September 2022 (the meeting scheduled for 23 August has a non-decisional status, although that National Bank of Poland might change it). This is a good time to consider the advantages of sale and leaseback as a form of business financing that is independent from WIBOR.

Interest rates have been increased since October 2021 as follows (by dates of the Monetary Policy Council meetings):

on 6 October 2021 the reference rate was increased to 0.50%

on 3 November 2021 the reference rate was increased to 1.25%

on 8 December 2021 the reference rate was increased to 1.75%

on 4 January 2022 the reference rate was increased to 2.25%

on 8 February 2022 the reference rate was increased to 2.75%

on 8 March 2022 the reference rate was increased to 3.5%

on 6 April 2022 the reference rate was increased to 4.5%

on 5 May 2022 the reference rate was increased to 5.25%

on 8 June 2022 the reference rate was increased to 6.00%

on 7 July 2022 the reference rate was increased to 6.50%

 

In July 2022, according to the Statistics Poland flash estimate, CPI inflation reached 15.5% YOY. In accordance with the July 2022 report published by the National Bank of Poland, the main contributor to the increase in inflation was the growth in the prices of energy, including fuel and energy carriers, as well as:

  • Growing dynamics of consumer goods and services prices in Poland in the first half of 2022.
  • An increase in raw material prices on global markets, which has intensified after the start of Russia’s military aggression against Ukraine at the end of February 2022.
  • An increase in enterprises’ operating costs (the price dynamics of sold industrial production in Poland – as in many other economies – has accelerated in recent months (to 24.7% YOY in May 2022).
  • Positive domestic economic situation that facilitated the transfer of rising costs to consumer prices.
  • Ongoing disturbances in global supply chains.
  • The global growth in the prices of raw materials and of some goods, as well as prolonged disruptions in supply chains, have contributed to the increased dynamics of credit liabilities drawn by large enterprises. In Q1 of 2022, the growth was 6.7% versus 2.2% in Q4 of 2021 (source: National Bank of Poland “Inflation Report – July 2022,” p. 33). There is still a strong need to obtain working capital and accumulate financial resources.

A natural consequence of increasing interest rates is growing WIBOR, and hence – loan installments. When drawing liabilities with a bank, many entrepreneurs are not aware of the opportunities that are offered by sale and leaseback transactions, which may turn out to be a cheaper and faster alternative to obtaining financing than loans. As a result of signing this type of contract, the property owner sells it to the investor, and continues to operate in the same scope and in the same location. Sale and leaseback is a solution providing many companies with significant resources for development, which can be allocated for any purpose, and the funding amount reaches the market value of the property, which is a significant advantage over bank financing that requires own contribution.

Advantages of sale and leaseback:

  • Full flexibility in spending the money earned on the sale – investments, liability repayment, dividend.
  • Financing in the amount of the property’s market value.
  • Long lease period, purchase option, service fees – at the parties’ decision.
  • Monthly rent independent from WIBOR – a cheaper alternative in the time of increasing interest rates.
  • Quick decision process

INWI is actively seeking real properties owned by companies with annual turnover above 100 million PLN. Feel free to contact us: mariusz.stepien@inwi.pl / tel. +48 789 046 179