Using a Business Loan to Buyout Partner
Is using a business partner buyout loan a good idea? If you run a business with a partner, there may come a time when you’ve decided to go separate ways. You might simply have different ideas about the direction of the business, one of you may be looking to try something new in life or one of you might be looking to retire. Whatever the reason is, it can be difficult to attain business partner buyout financing. One of the most common ways of buying out a business partner is using a business loan.
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How To Finance A Partnership Buyout
There are various methods of funding your partner buyout financing – a merchant cash advance might be an option if you have a lot of credit and debit card sales, you may even consider some equity financing as alternative investors take over your partners shares. In this article we focus specifically on using a business loan to buy out a partner, which is generally the best option to look at first and compare the best small business loans to see which work best for your business.
Business Valuation for Partner Buyout
Before using a loan to buy out a business partner, the partners will need to agree on how much the business is worth. On starting the business you and your partner will have agreed to a shareholder agreement and it should have terms laid out in the event that a partner buyout were to occur.
The shareholder’s agreement should serve as a road map as you and your partner navigate your way over the course of a buyout, but in reality this will not always be the case. Some of the terms might be outdated and no longer relevant, particularly if you haven’t reviewed the shareholder agreement as you’ve grown. Ultimately both partners will have a view on how much the business is worth and it might be that you’re required to seek an independent valuation if you are to agree how much the business is worth.
Are Partner Buyout Loans As Easy To Achieve as Other Types of Business Loan?
Are different types of loan as easy to achieve as the next? The short answer to this question is no they aren’t. Loans which are directly invested into the business are more likely to assist in achieving a positive ROI. Thus, equipment financing to invest in new plant machinery or a loan to grow the inventory of well selling stock are more likely to be approved by lenders than a business loan to buyout a partner. In partner buyout loans the money isn’t directly connected to achieving ROI as the money is going straight into the pockets of a departing shareholder.
That’s not to say it can’t be achieved though. Particularly if the underlying numbers of your revenue and profit are strong.
A growing number of dedicated small business loan providers in Australia provide partner buyout loans. In the US, the Small Business Administration (SBA), a government agency that supports small businesses, will assist entrepreneurs and small businesses to buy out a business partner. In Australia however, despite a number of small business grants and support from the government, this doesn’t exist and it’s better to utilise a specialist small business lender.
If you are set to take a business loan to buy out a partner there are a number of things to keep in mind. The terms can often be complex and getting the valuation correct will be important to avoid complicated difficulties down the line. It may prove worthy of seeking legal advice. Some non-bank lenders, depending on your business profile, may provide partner buyout loans without the need for your business to provide security. As always, the online lending companies in Australia will provide a loan decision fast and have funds over to you within 24 hours.