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Business partnerships may change over time. One partner might want to move on while the other wants to continue growing the company. When this happens—whether because of retirement, conflict, or a desire to pursue something else—a partner buyout can be a natural solution.
This is where an SBA loan could help. A partner who wants to keep growing the company may have insufficient funds to buy out the other partner. Using SBA loans to buy out partners is a practical and accessible option for business owners looking to stay with their company.
At Business Funding Group (BFG), we have successfully helped many business owners secure SBA loans to cover partner buyouts, enabling them to keep their companies moving and growing. Contact us today to learn how an SBA 7(a) loan could help you acquire more of your business.
Before the SBA approves a loan for a partner buyout, the partners must determine and agree on the business’s value. In case of a disagreement, a third-party appraiser may conduct a business valuation.
For business owners looking to purchase a partner’s share of a business, the SBA loan program offers the following benefits:
The SBA requires the loan applicant to purchase 100% of the selling partner’s ownership interest or acquire all or substantially all of the business’s assets if they structure it as an asset purchase. Buying only a portion of a partner’s interest makes someone ineligible for an SBA loan.
SBA rules do not require a borrower to put down equity if the business’s debt-to-net-worth ratio is 9:1 (or lower). For example, if a business has a net worth of $1M, it can support up to $9M in debt without the buyer having to put down equity.
When applying for an SBA loan, lenders are most concerned with creditworthiness and cash flow. They want to see that you have a history of repaying loans and have the cash to make payments reliably.
You can structure a partner buyout with SBA loans in many ways. Some of the most popular buyout types are:
Lump-sum buyouts involve purchasing the selling partner’s ownership in one transaction. An earn-out allows a portion of the buyout price to be paid over time. The amount paid is tied to the business’s performance, and the selling partner often remains involved for a specified period.
Installments are similar to earn-outs, but the selling partner does not need to stay. A partner conducts an equity buyout by purchasing the selling partner’s stake directly, sometimes with a combination of financing.
SBA loans enable many business owners to buy out their partners when they might not be able to do so otherwise. Using SBA loans to buy out partners is a smart way to maintain control of your business and finance its growth.
Begin exploring your SBA loan options with a free, 10–15-minute, no-obligation phone call with BFG. We have significant experience guiding business owners through the process of acquiring their partner’s business interest.
While you focus on planning the partner buyout transition, let us handle the difficult parts of the application process to ensure the business remains stable during the change in ownership.
(917) 593-5013