When an owner sells a business and the building it operates from, they are running two transactions that have to close on the same day. Most of the money that gets lost or found in these deals is decided by how those two are structured, and it gets decided early.
In this metro there is a third variable: whether the building is in Tennessee or Georgia. That changes the closing cost, the ongoing tax and, in one specific way, what the business itself is worth.
Sell, Lease, or Sell Separately
Three structures, and the right answer depends on what you want the money to do.
Sell Both to the Same Buyer
The cleanest outcome and usually the one that maximizes what you receive at closing. It also widens what a buyer can finance, because SBA 7(a) allows a longer amortization when real estate is part of the project, which lowers the blended monthly payment and improves the coverage ratio the lender is testing.
The trade is that you need one buyer who wants both, and that is a smaller pool than the one that wants only the business.
Sell the Business, Keep the Building, Lease It Back
You retain an income-producing asset with a tenant you know, and the business sells to a wider pool of buyers who do not have to fund the real estate.
The risk is that you have become a landlord to the person operating your former business. If they struggle, your rent is the first thing under pressure. The lease has to be negotiated at arm’s length, at genuine market rate, with real remedies, and it has to be drafted before the purchase agreement is signed. A below-market lease inflates the business earnings a buyer is paying for and understates the value of the building you kept, so you are effectively paying yourself twice out of one pocket.
Sell Them Separately, to Different Buyers
Occasionally right, usually when the building is worth more to a developer or a different user than it is to whoever wants the business. The complication is timing and the lease that has to bridge them.
The Building Is Worth More Here Than It Would Be Elsewhere
This is the market-specific point, and it is a real one.
Chattanooga metro industrial vacancy was around 2.7% with average asking rent near $7.76 per square foot in the third quarter of 2025, with net absorption still positive. In a market that tight, owning your building is not just a balance sheet item. It removes the single largest risk in a business acquisition, which is a buyer discovering they cannot secure the space the business runs from.
The corollary is that a business with a short lease in this market carries a discount that would be smaller elsewhere, because the buyer’s alternative genuinely does not exist at a price they can model. If you own the building, that risk is gone and the business is easier to sell for it.
Where the building sits matters too. The submarkets behave differently: Enterprise South and I-75 north carry manufacturing and supplier activity, the airport and Amnicola belt serves smaller users in the 10,000 to 40,000 square foot range, Catoosa, Ringgold and Walker attract cost-conscious occupiers with lower rents and available land, and Cleveland in Bradley County draws light manufacturers on the same interstate at a lower cost.
Tennessee Against Georgia: What the Closing Actually Costs
The state line runs through the middle of this metro and the transaction taxes are materially different.
Tennessee. Realty transfer tax is $0.37 per $100 of consideration or value, whichever is greater. Recordation tax on indebtedness is $0.115 per $100, less the first $2,000.
Georgia. Real estate transfer tax is $1.00 for the first $1,000 and $0.10 for each additional $100. Georgia then adds an intangible recording tax of $1.50 per $500 of the face amount of a long-term note secured by the property, capped at $25,000 per note.
Run the arithmetic on a $2M building. Tennessee’s transfer tax is roughly $7,400. Georgia’s is roughly $2,000, but a $1.6M note carries about $4,800 of intangible recording tax on top. The point is that these produce different numbers in different directions depending on how much is borrowed, and they are large enough that the closing statement should be modeled before anyone signs anything.
The Franchise Tax Point Nobody Mentions
Tennessee’s franchise tax is 0.25% of Tennessee net worth, with a $100 minimum. The alternative property measure that used to sit on Schedule G was repealed by Public Chapter 950 in 2024 for tax years ending on or after January 1, 2024, so net worth is now the only base.
That has a structuring consequence. Real property held inside the operating entity increases that entity’s net worth and therefore its annual franchise tax. Holding the building in a separate entity that leases to the operating company is the common structure for liability reasons anyway, and it changes the franchise position as well. Whether it helps depends on the debt against the property and the specifics of the entities, which makes it a question for your CPA. What matters is that the question gets asked before a sale, because unwinding an entity structure during a live transaction is expensive and slow.
Ongoing Property Tax a Buyer Will Model
Tennessee assesses commercial and industrial real property at 40% of appraised value and commercial and industrial tangible personal property at 30%. The assessment is multiplied by the local rate to produce the bill.
For a business with a building and a heavy equipment schedule, that is two recurring lines a buyer underwrites. If your equipment schedule has not been reviewed in years and carries assets that no longer exist, you are paying tax on them and a buyer is being shown a cost that is higher than it needs to be. Cleaning that up before a sale is cheap and it improves the earnings a multiple is applied to.
Two Appraisals, Two Different Questions
A transaction with real estate involves two independent valuations that answer different questions, and sellers conflate them constantly.
The business valuation asks what the operation earns and what a buyer will pay for those earnings. It is a multiple applied to recast cash flow. The real estate appraisal asks what the property is worth to a market of possible users, on its own, and it is built from comparable sales, replacement cost and the income the property could produce leased to anyone.
Two consequences follow. First, a purpose-built facility can be worth substantially less than it cost, because a building designed around one operation has a smaller pool of alternative users. Second, if you have been paying yourself above-market rent through a related entity, the business earnings are understated and the building is overstated, and the two errors do not cancel. They have to be normalized to market before either number means anything.
Get an independent read on the building before you set a combined asking price. An SBA lender orders an appraisal and it can disagree with you, and a low appraisal in the middle of a deal forces a renegotiation from a weak position.
Environmental Diligence Is Not Optional Here
Any industrial property with a manufacturing, automotive, fuel storage or dry cleaning history draws environmental scrutiny, and this metro has a long industrial past along the riverfront and the rail corridors.
A phase one environmental site assessment is standard for a commercial acquisition with financing. It is a records and site review, it takes a few weeks, and it is inexpensive. What matters is what happens if it recommends further work: a phase two involves sampling, costs materially more, takes longer, and stops a closing calendar until it resolves.
If you know the site has history, commission the phase one yourself before going to market. Finding a recognized environmental condition on your own schedule is a manageable problem. Finding it in week seven of a buyer’s diligence, with a lender reading the same report, is a different situation entirely.
How the Financing Actually Works
SBA 7(a) is the common vehicle when a buyer is acquiring both. The relevant mechanics:
• Longer amortization when real estate is included, which lowers the monthly payment and improves the coverage ratio, which in turn supports a higher total price.
• A minimum 10% equity injection on a complete change of ownership under SOP 50 10 8, effective June 1, 2025, calculated on total project costs, which the SBA defines as all costs required to complete the change of ownership regardless of source of funds. Adding the real estate raises the project cost and therefore the dollars the buyer has to inject.
• A seller note counts toward that injection only on full standby for the life of the SBA loan and only up to half the required injection.
• An appraisal on the real property, which is an independent number that can disagree with your price and frequently does. Get a realistic read on the building before you set a combined asking price, because a low appraisal mid-deal forces a renegotiation you did not plan for.
Allocation Between the Two Is Negotiated, and It Matters
How the total price splits between the business and the real estate changes the tax outcome for both sides, and it is a live negotiation, not an accounting formality.
Depreciation recapture on the building, capital gain treatment on the goodwill, ordinary income on the non-compete and on inventory, and the Tennessee excise tax at 6.5% of net earnings at the entity all move as the allocation moves. A buyer has their own preferences, which usually run opposite to yours. This is your CPA’s work and it has to be done before the letter of intent, because after it the allocation is a concession you pay for.
What to Do Before You Market Either One
• Get a realistic value on the building independent of the business, from someone who will not be selling it.
• Decide the structure, sell both or lease back, and decide it before you talk to buyers.
• If leasing back, have the lease drafted at genuine market rate before the purchase agreement.
• Review the entity structure with your CPA, including the franchise tax net worth position.
• Clean the personal property schedule of equipment you no longer own.
• Resolve any environmental question early. A phase one on an industrial site is standard and a phase two stops a closing calendar dead.
• Model the closing costs on the correct side of the state line.
Selling a Business and a Building?
These transactions reward planning more than almost anything else in this business, because the structure has to be decided before a buyer is in the room. I handle both sides of it, and the firm is licensed to transact in Georgia, Tennessee and South Carolina, which on a two-state metro is the practical requirement.
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