Is your business partner ready to retire or move onto their next venture? Are you not seeing eye to eye on the company’s vision and future? Are there disputes between you and your partner you simply can’t work through? There are many reasons why you may want to buy out your business partner. No matter the reason for a partner buyout, you may need creative and effective small business financing solutions for the deal.
Before looking at financing options for partner buyouts, there are a few things you may need to do first. One important part of a successful partner buyout is agreeing on the value of the business and your current partner’s related share. This is often a point of contention, which is why many business owners choose to get valuation assessments to help with negotiations, either via valuation specialists or through consulting firms like Sabre Financial Group.
It is of course important to determine the structure of the buyout deal. There are three common options for partner buyouts:
- Lump Sum Buyouts: This option provides your partner with money up front for their share of the business.
- Partner Buyouts Over Time: This partner buyout option allows you to buy out your partner in predetermined increments until you pay for their share in total.
- Earn Outs: These types of buyouts are a contract where a portion of the buyout price is fixed while a separate portion is variable and contingent on performance of the company over future months or years.
The partner buyout structure you choose has a significant impact on which financing options you are able to use for your partner buyout as some lenders are more or less open to these various structures.
Small Business Financing Solutions for Partner Buyouts
Partner buyouts require capital to compensate your current partner for their shares of the business. While you may be able to pay your partner in a lump sum of cash, this often isn’t feasible, and even if feasible, can seriously impact cash flow and thus isn’t necessarily preferable. Most business owners instead use small business financing solutions to raise the capital needed for a partner buyout deal.
Debt-Based Financing Options
Debt financing is the most common option for financing partner buyouts. However, traditional lenders may or may not be excited to loan capital for partner buyouts. It is a potentially risky transaction that may not add direct value to the company itself. You may need private lenders or other alternative financing solutions – or at least knowledge of the right types of banks that will take on these deals. Our team can help you explore creative small business financing solutions for partner buyouts based on your specific needs.
It also may be possible to secure debt financing option for a partner buyout via an SBA loan. However, keep in mind that obtaining these loans requires planning, preparation, and patience. Often SBA loans require extensive records and documentation and can also take several months to finalize. Sabre Financial Group has a high level of familiarity and expertise with SBA lending and can guide you through this process to save time, stress, and money.
Equity Financing Options
While debt financing is the most common for partner buyouts, equity financing may also work for your needs. This is where private investors purchase your partner’s share in the company to gain equity. However, keep in mind that this option typically means trading your current partner for another partner or partners. If you’re looking for sole ownership of the company, equity financing for a partner buyout isn’t your solution. However, it can work quite well for many situations. Our financial professionals can help you weigh the pros and cons to find the financing solution that works best for you.
Finding Small Business Financing Solutions with Sabre Financial Group
Our team at Sabre Financial Group offers years of experience to provide you with the financial consulting services you need for business success and growth. We can help with everything from financing of partner buyouts to M&A consulting to business valuation assessments to business sale and exit advisory – and more. When you need capital, we draw on our large network of investors and lenders to match you with the right financing for your business. Contact us today to schedule a consultation with our seasoned professionals.