Lending Option that allows minority owner to stay with company

February 12, 2021

by a searcher from Pennsylvania State University in Pittsburgh, PA, USA

I have looked at a few deals lately where a key employee owns a minority stake and wants to continue working with the business. What are other lending options since SBA will not allow seller to remain over 1 year? What would be the expected down payment needed for that kind of deal?

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Reply by a lender
from University of Missouri in St. Louis, MO, USA

The ownership % is relevant in the discussion. If the minority owners don't expect proceeds from the sale then they can have their ownership transfer to the new business. Issue usually presents itself if they have 20%+ ownership because then they would have the provide a PG. However, if the employees own say 10% of the existing business then they could roll that into the new company as well.

Reply by a searcher
from La Sierra University in Destin, FL 32541, USA

In my experience the SBA requires all the ownership to transfer although Colin's solution could probably work. As far as keeping them on, the SBA only wants them to be around for a year (makes no sense). What I did was sign an employment contract with an additional % based off of revenues (basically an earnout which are also not allowed) outside of escrow on the same day of closing.

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