A sale-leaseback generates 100% "financing" of business real estate assets.
There are no restrictions on the use of funds provided by sale/leaseback financing. They may be used for expansion, debt consolidation or reduction, operating capital or for investment purposes.
Credit lines with banks, insurance companies or other lenders are generally not disturbed, as negative covenants in borrowing agreements do not usually prevent the debtor from selling and leasing back real estate.
The net proceeds from the sale of the real estate will appear as an asset on the balance sheet as additional cash - minus provisions for income taxes as a result of any gain on the sale. The net worth of the company is increased on the balance sheet because, in most cases, the equity in real estate realized by a company in a sale-leaseback is greater than the net book value of the property.
If the transaction is properly structured, the total rent is a deductible item for income tax purposes. This has the effect of depreciating non-depreciable land, since the rent includes the right to use the land.
The seller can occupy the property on a long-term basis and with favorably negotiated terms. [The seller has the use of the property without any capital invested in it.]
If the transaction is properly structured, capital improvements built by the lessee may be amortized over the period of the lease. Many times this results in an amortization schedule which is faster than what would be available by depreciation if the lessee owned the property.