Partner buyouts are where good businesses make bad decisions - because the trigger is usually emotional (retirement, burnout, conflict) and the temptation is to drain the company's cash to make the problem leave faster. The better path: finance the buyout against the business's future, keep working capital intact, and paper it like the serious transaction it is.
How buyouts actually get funded
The hybrid earns its popularity: the seller note keeps the departing partner invested in a smooth transition (their payments depend on the business staying healthy), while the funded portion gives them real money at closing.
| Structure | Share of deals | The shape |
|---|---|---|
| Seller note | Very common | Departing partner is paid over 3-7 years from cash flow |
| Term loan / SBA 7(a) | Common | Lender funds the buyout; SBA loves these when financials are clean |
| Hybrid (loan + note) | The sweet spot | Bank funds 60-70%, seller carries the rest - aligns everyone |
| Asset-based | Situational | Equipment/receivables secure the raise when cash flow is lumpy |
Valuation: agree on the method before the number
Most small-business buyout fights are actually method fights wearing number costumes. Agree first on the approach - a multiple of seller's discretionary earnings (2-4x is typical for small operations), asset-based for equipment-heavy shops, or a pre-agreed buy-sell formula if your operating agreement has one (check - many do, forgotten since formation). Then let a neutral valuation professional run it. $3-8K for the appraisal is the cheapest fight-prevention money in business.
Lenders underwrite the STAYING partner
The financing question isn't what the business was worth with both of you - it's whether it performs under you alone. Walk in with a post-buyout plan: who covers their duties, which relationships transfer, what changes. That document moves approvals more than another year of financials.
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What do you need funding for?
Buyout deals need quarterbacking
Dealerun routes buyout financing to partners who do them regularly - SBA-preferred lenders for the clean files, asset-based structures for the complicated ones, and honest sizing so the company you keep isn't starved by the price you paid.
Structure the buyout right
Confidential - map the financing before the negotiation hardens.
FAQ
Can I use an SBA loan to buy out my partner?+
Yes - partner buyouts are an explicitly eligible SBA 7(a) use, typically wanting solid financials, your industry experience, and sometimes a modest equity injection. Timeline 45-90 days; bridge financing exists if the separation can't wait.
What if we can't agree on the price?+
Invoke the operating agreement's buy-sell mechanism if one exists. If not: jointly hire one neutral valuator and pre-commit in writing to a range around their number. The alternative - dueling appraisers and lawyers - routinely costs more than the gap being argued over.
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