Guide to Buying Out a Business Partner
Share this article:
What Is a Buyout?
4 Steps to Setting Up a Buyout
1. Review Operating Agreements
2. Create a Buyout Agreement
3. Determine Fair Value
4. Find Financing
Financing a Buyout
Pros of SBA Loans
SBA lenders may be more likely to finance a partnership buyout than banks. These are among the most affordable small business loans, offering long repayment periods and low interest rates.
Cons of SBA Loans
If you don’t have great credit or haven’t been in business for at least two years, you may not qualify for an SBA loan for a buyout. Applying for an SBA loan is a lengthy process, and it can take many months before you receive the funding.
Alternative Business Loans
Pros of Alternative Business Loans
Even if you don’t qualify for a bank or SBA loan, you may be able to get buyout financing from an alternative lender. The application and approval process is typically quick — you may be able to get buyout financing within a few days or weeks.
Cons of Alternative Business Loans
Alternative lenders typically charge higher interest rates and fees than banks or SBA lenders. Typically, loan amounts are smaller, and repayment terms are shorter than they are with bank and SBA loans.
Pros and Cons of Partner Buyouts
Pros of Buying Out a Business Partner
It ends the partnership quickly. If your partnership is no longer working, a quick exit can be ideal. Buying your partner out allows you to get back to focusing on your business and gives you full control over how to move the company forward. It allows you to keep the business going. If you buy out your partner, rather than dissolve the business, you can keep your business running and won’t have to start all over again from scratch.
Cons of Buying Out a Business Partner
It can be costly. Buyouts can be expensive, and you will likely also need to take out financing, which means paying interest and fees. It could have a negative impact on the business. If your business partner provides value to your business through expertise or connections, buying out your partner means giving up those assets.
Alternatives to Partner Buyouts
Getting a Business Loan for a Buyout
Frequently Asked Questions
About the Author
Share this article: