How Sale Leasebacks Help Businesses Access Capital Without Debt

As companies enter a slower economic cycle, one challenge sits at the center of nearly every boardroom discussion: how to secure capital for growth in an environment where credit is tight, interest rates are elevated, and lenders are more selective.

For businesses that own their real estate, an often overlooked solution is hiding in plain sight. A sale leaseback lets operators unlock the value of their property without borrowing, diluting equity, or jeopardizing day-to-day operations. It has become one of the most effective capital tools for companies seeking liquidity without the downside of traditional financing.

Below is a breakdown of how the strategy works and why more companies are turning to it as a core financial lever.

Converting an Illiquid Asset Into Immediate Capital

For most owner-operators, real estate is one of the largest assets on the balance sheet. It is also one of the least liquid. Buildings generate operational value but trap equity that cannot be accessed without either selling outright or taking on debt.

A sale leaseback changes that equation.

The business sells the property to a long term investor and simultaneously signs a multi-year lease to remain in place. Operations continue as normal. Employees keep coming to the same facility, production remains uninterrupted, and customers experience no change. The only difference is that the building is now leased rather than owned, and the company receives a substantial capital injection on day one.

The impact is immediate.
Businesses typically achieve:

• A significant upfront cash infusion
• No new debt added to the balance sheet
• A long term lease that preserves operational control

Ascension Advisory recently guided Valeo Foods through this structure across 6 assets in Europe, generating nearly €88 million in proceeds. The company redirected that capital into core operations and strategic initiatives while maintaining uninterrupted control of its manufacturing footprint.

A Non Debt, Non Dilutive Source of Growth Capital

Traditional funding options have structural trade-offs.

• Loans introduce leverage at a time when interest expense is already high.
• Equity raises dilute ownership and can shift control.
• Refinancing depends on lender appetite, debt service ratios, and broader credit conditions.

A sale leaseback avoids these constraints. It unlocks capital using an asset the company already owns. No borrowing. No equity dilution. No restrictive covenants.

This has become especially valuable for companies preparing expansions or acquisitions. Ascension’s work with L. S. Starrett Company, backed by MiddleGround Capital, illustrates this clearly. Starrett used a sale leaseback on its Minnesota and Ohio facilities to generate capital that could be reinvested directly into the business. The transaction preserved balance sheet capacity for future financing needs while keeping full operating control of the sites.

Improving Cash Flow and Strengthening the Balance Sheet

One of the most overlooked advantages of a sale leaseback is its positive impact on financial clarity.

Companies receive a large upfront capital event. That liquidity can be allocated to:

• Retiring higher cost debt
• Funding equipment upgrades
• Supporting acquisitions
• Expanding production capacity
• Increasing working capital reserves

At the same time, the business exchanges the variability of real estate ownership for a predictable lease expense. Long term leases, often 15 to 25 years, give CFOs known occupancy costs far into the future. This makes budgeting simpler and improves visibility in long term planning.

In Ascension’s case study with Diversified Technologies International, the transaction allowed the operator to eliminate a conventional mortgage, free up liquidity, and redirect focus toward scaling production. The sale leaseback replaced a variable capital structure with a stable one while preserving continuity for operations, staff, and customers.

Why More Companies Are Turning to Sale Leasebacks

Even as interest rates begin to normalize, lending standards remain conservative. Banks are more selective, underwriting is tighter, and loan-to-value ratios are more restrictive.

This environment has pushed many businesses to evaluate alternatives that provide capital without adding leverage. Sale leasebacks have emerged as a preferred option because they sit outside the credit cycle. Real estate investors evaluate transactions based on the quality of the tenant, property fundamentals, and lease economics, not the borrower’s debt capacity.

Across sectors like manufacturing, logistics, distribution, healthcare, engineering, and food production, companies increasingly view their real estate as a strategic financial asset rather than simply a place of operations.

Strategic Benefits Beyond Capital

Although the primary appeal of a sale leaseback is the immediate infusion of liquidity, the structure creates several quieter advantages that can materially strengthen a company’s financial position. One of the most significant is the preservation of borrowing capacity. Because the capital comes from real estate rather than new leverage, companies retain the ability to access credit later for equipment financing, working capital, or acquisitions. For operators preparing M&A activity, this flexibility can be a meaningful advantage.

Sale leasebacks have also become an important tool for private equity sponsors. Many use them at the time of acquisition to reduce the upfront equity requirement while maintaining full operational control of the business. Ascension has executed this strategy across multiple industrial and manufacturing platforms, helping sponsors improve returns by redirecting capital into higher yielding initiatives rather than tying it up in owned real estate.

The shift from ownership to a long-term lease can also improve return on capital. Real estate often delivers modest yields compared to reinvestment in the core business. Converting a passive asset into cash allows operators to fund expansions, technology upgrades, or production improvements that create far greater value than holding the building on the balance sheet.

A Few Misconceptions Still Persist

Despite broader adoption in recent years, several misunderstandings continue to shape how some operators view sale leasebacks. The first is the idea that these transactions are primarily used by distressed businesses. In practice, most deals occur in healthy, profitable companies that want to optimize capital structure or fund strategic growth. Many transactions are executed during platform acquisitions, add-on integrations, or major expansions.

Another misconception is that selling the real estate reduces control of the business. In reality, the operating company signs a long-term lease that preserves full autonomy over production, staffing, and daily operations. These leases are deliberately structured to create stability for both tenant and investor.

Concerns about occupancy risk tend to fall into the same category. Sale leasebacks typically involve long-term, absolute net leases designed to keep businesses in place for decades. There is no disruption to operations, and the physical footprint remains intact.

When a Sale Leaseback Makes the Most Sense

The strategy is most effective when:

• The business is stable and mission critical to its property
• The operator plans to stay in the building long term
• The company needs capital to expand, acquire, or modernize
• The real estate has strong fundamentals, location, and utility
• The owner wants liquidity without leverage or ownership dilution

These conditions are common across middle market operators, making the sale leaseback uniquely relevant in today’s environment.

The Bottom Line

A sale leaseback is one of the most direct ways for a company to unlock capital without borrowing, raising equity, or disrupting operations. It converts real estate into growth capital, stabilizes cash flow, and strengthens the balance sheet in a single transaction.

As businesses prepare for the year ahead, many are turning to this strategy to fund expansions, pay down debt, accelerate acquisitions, and modernize facilities. For operators who own their property, the sale leaseback continues to be one of the most strategic financial tools available.

Companies interested in exploring whether a sale leaseback is viable for their situation can reach out to Ascension Advisory for a complimentary assessment and a preliminary valuation of both their business and real estate.