Two paths to capital. Different constraints. Here's what the comparison actually looks like — including where each one falls short.
If you own your operating real estate and need growth capital, two paths dominate the conversation: borrow against it through a bank, or sell it through a sale-leaseback and stay as the tenant.
Most operators have a clearer picture of the first option. They've done SBA loans. They know how the banker conversation goes. The sale-leaseback conversation is less familiar, which means the comparison often happens with incomplete information.
Here's what each structure actually looks like, across the dimensions that matter most.
The comparison
| Bank Debt (SBA / Conventional) | Sale-Leaseback | |
|---|---|---|
| Capital unlocked | 65-75% of property value | 100% of property value |
| Financial covenants | Yes — leverage ratios, coverage minimums, distribution limits | None (typical NNN lease) |
| Lease / debt term | 5-25 years, amortizing | 15-25 year primary term, flat rent |
| Tax treatment | Interest deductible (subject to limitations) | Rent fully deductible as operating expense |
| Personal guarantee | Almost always required | Often corporate-level only |
| Operational flexibility | Limited by covenant package | Full operational control retained |
| Timeline to capital | 60-120 days typical | 30-60 days (all-equity buyer) |
| Fixed cost | Variable (rate-sensitive) | Fixed (annual escalators specified) |
Unpacking what that table actually means
Capital unlocked: 100% vs 65-75%
This is the most straightforward difference. If your property is worth $5 million, a bank mortgage at 70% LTV produces $3.5 million. A sale-leaseback produces $5 million — the full market value.
On a $5 million property, the gap is $1.5 million. That's another location. A remodel program. Working capital for a difficult quarter. The difference between having enough to execute your plan and having almost enough.
The lender's LTV limit isn't arbitrary — they're protecting against the possibility that the collateral value drops. The sale-leaseback investor accepts more of the property risk in exchange for owning the asset outright and receiving rent under a long-term lease.
Covenants: none vs. a covenant package
Bank loans come with covenants. These are contractual obligations — usually a minimum fixed charge coverage ratio, a maximum leverage ratio, restrictions on distributions to owners — that the borrower must maintain throughout the loan term.
Covenants exist because the bank doesn't own the asset. They're renting their money to you and want to make sure you're running the business in a way that protects their position.
Under a standard triple-net sale-leaseback, the only ongoing obligation is paying rent and maintaining the property. There's no covenant package restricting how you run the business, how much you distribute to yourself, or what your leverage ratio looks like. The investor owns the building. Their interest is the rent payment. Your interest is the business. Those two things don't conflict.
For operators who are close to a covenant limit — or who anticipate a challenging quarter — this distinction matters immediately.
Tax treatment: rent vs. interest
This one is often misunderstood. Mortgage interest is deductible, but the deductibility is subject to the rules of Section 163(j) of the tax code, which limits business interest deductions based on adjusted taxable income. For larger operators, or operators with other interest expense, this can be a real limitation.
Rent paid under a sale-leaseback is deductible as an ordinary business operating expense with no analogous limitation for most operators. The full rent payment runs through the P&L as an operating cost.
This isn't a universal advantage — it depends on your specific tax situation and you should confirm the analysis with your accountant. But it's a real consideration that doesn't always come up in the comparison.
Personal guarantee exposure
The SBA requires a personal guarantee from any owner with 20% or greater equity. Most conventional bank loans have similar requirements for smaller operators. Over time, as you accumulate multiple SBA loans, the PG exposure compounds.
Under a sale-leaseback, the tenant obligation typically rests with the operating entity — the corporation or LLC that runs the business — rather than with the individual owner personally. For mature multi-unit operators who've been building PG exposure across several properties, the difference is meaningful.
Timeline: 30-60 days vs 60-120 days
Bank transactions move at bank speed. Underwriting committee. DSCR analysis. Appraisal queue. Title work. The SBA 7(a) process often takes 90 days or longer.
An all-equity sale-leaseback buyer has no bank approval to wait for. The underwriting is faster, the process is cleaner, and the closing timeline compresses significantly. On clean deals with prepared operators, 30 to 45 days from LOI to wire is achievable.
For an operator trying to close on a new location or capture a time-sensitive site, timeline is itself a form of capital.
Fixed cost: predictable rent vs. rate-sensitive debt
A 20-year lease with 2% annual escalators is a fixed cost you can model forward. You know what the rent will be in year 10.
Variable-rate debt moves with the market. Many operators who took SBA floating-rate loans in 2020-2021 at 3.5-4.5% are now servicing debt at 6.5-8%. The payment increased without any corresponding increase in their business's revenue.
The predictability of fixed rent is worth something. In a rising rate environment, it's worth considerably more.
Where debt makes more sense
The comparison above would be incomplete without acknowledging the situations where traditional debt is the better answer.
If you need short-term flexibility. A sale-leaseback creates a 20-year rent obligation. If there's material uncertainty about whether you'll be in that location for 20 years — because of a brand pivot, a site issue, or a business restructuring — that's a constraint worth taking seriously. Refinancing debt is simpler than unwinding a long-term lease.
If the real estate is the most valuable thing you own. For operators sitting on land in a market where real estate appreciation is outpacing the business's return on capital, keeping the real estate may make more sense than unlocking it.
If the rent coverage doesn't work. A sale-leaseback requires the business to sustain the rent obligation for the lease term. If the unit economics don't produce adequate rent coverage — typically 2x or better for most business categories — the structure puts pressure on the business that makes the whole arrangement worse, not better. In that situation, a loan against the property may be more appropriate because the debt amortizes and eventually goes away.
The decision
The operators who benefit most from a sale-leaseback typically look like this: growing business, multiple locations, real estate equity that's sitting on the balance sheet but not working as hard as the operating business, and a capital need that either exceeds what conventional debt can support at their LTV or that comes with covenant restrictions that limit growth.
The operators who benefit most from bank debt typically look like this: a business in a stable phase, a short-term capital need, or a situation where the real estate appreciation potential is part of the long-term plan.
Both structures have legitimate uses. The comparison matters because the right choice depends on specifics that are different for every operator.
Trying to figure out which one fits your situation? We're happy to run the comparison on your actual numbers. The calculation is specific — it takes 30 minutes with someone who's seen both sides of this decision across a lot of deals.