What is a sale-leaseback transaction?

A sale-leaseback transaction occurs when one party sells an asset to another party and simultaneously enters into a lease agreement to lease the same asset back. This arrangement allows the seller to convert the asset into cash while retaining the right to use it, typically for operational purposes.

In a sale-leaseback, the seller benefits by generating immediate cash flow from the sale, which can be used for various business needs, such as reducing debt, investing in new opportunities, or improving liquidity. The leasing arrangement ensures that the seller can continue to use the asset without the burden of ownership.

The other options do not accurately describe the nature of a sale-leaseback transaction. For instance, purchasing an asset outright refers to a straightforward acquisition without the leasing component. Financing through bank loans pertains to obtaining funds from a financial institution rather than engaging in a transaction involving the sale and leasing of an asset. Lastly, the involvement of only the lessor in a sale is incorrect because a sale-leaseback requires the participation of both the seller and the buyer/lessor, who enters a leasing agreement.