You sold the building, and you are still working in it. That is a sale-leaseback. For a balance-sheet-heavy small business, it can turn a little breathing room into enough capital to actually move.
A CFO would not call it a real estate decision. It is a capital-allocation decision, and the downsides hide in the fine print and on the future balance sheet.
What a Sale-Leaseback Changes Compared to a Mortgage
A mortgage typically covers 65 to 75 percent of an asset’s value. A sale-leaseback can return much closer to 100 percent in cash, because the buyer is underwriting the business as a tenant under a signed lease, not just the property. That gap is the difference between breathing room and room to move.
What Qualifies for a Sale-Leaseback
Buyers want three things: an asset that holds value, a real resale market, and an operator who will keep paying rent. That points to owner-occupied real estate, production and construction equipment, vehicles and fleets, and high-value general-purpose equipment.
Two tests filter out the rest. The asset should be paid off or nearly lien-free, and it must carry genuine resale value. A custom machine nobody else can use fails both.
The Upside of Selling and Leasing Back
- Immediate liquidity. Cash arrives at close, based on the asset’s value rather than a bank’s lending cap.
- No operational disruption. The business keeps using the asset as before.
- Potentially fewer covenants. The buyer’s recourse is the lease, so terms can look different from bank debt.
- Deductible rent. Lease payments are generally deductible as a business expense. Confirm the treatment with your tax advisor.
What the CFO Watches For
- Lost appreciation. You forfeit future gains on the asset.
- The balance sheet. Under ASC 842, the lease liability generally returns to your books.
- Tax today. The sale can trigger depreciation recapture and capital gains.
- Fixed rent. It is a fixed obligation that does not flex with revenue.
- End-of-term control. Renewal is on the landlord’s terms.
Three Questions Before You Sign a Sale-Leaseback
- Where is the freed cash going, and does it earn more than the rent costs?
- What is total rent over the term versus the financing you would otherwise carry?
- Will the accounting and tax treatment hold up under review?
The owner who treats the proceeds as found money loses. The owner who prices the rent against what that capital can earn usually wins.
Book a call with Business CFO for Hire to test one of your own assets against the sale-leaseback math.
