Ownership Structure with Equity Investor and 2x Step Up

October 30, 2025

by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA

I have heard conflicting approaches to this Scenario. Additionally, AI will tell you something completely different as well. So I would like to see if it can be cleared up. The below is not an actual deal, just using easy numbers to work with. I buy a company with project cost of $10M. My sources are $5M SBA, 1M Seller Note, $2M Seller Rollover, 200k of my cash, and $1.8M investor injection with a 2x step up. What does the ownership structure look like? In this scenario, I am calculating 36% for the equity investor, 20% for seller, 44% for myself. Am I wrong in that logic?

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Reply by a searcher
from University of Virginia in Virginia Beach, VA, USA

Not exactly correct I don't think - check out this term sheet from main street capital partners (https://docs.google.com/document/d/1MJU738ihZ-tKBMi1g9AXgg-l_EBtNTmuOXeuQkEhvKg/edit?tab=t.0). They'd get 36% after they get their money and preferred returns back assuming a 2x in this case. The Sellers might want the same terms as the investors given they're also theoretically putting cash in the deal.

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Based on the summary of the terms you provided, that would appear to be the ownership structure. I know this is a hypothetical situation, but keep in mind if you were to use SBA financing the seller retaining 20% or more equity would need to sign a guarantee on the full loan amount for the life of the loan. That guarantee would also require the seller ot pledge personal assets if the loan is not fully secured by business asset. In addition, you could only do the acquisition as a stock or membership interest purchase when using SBA financing and then have the seller retain equity. Lastly, if it is a single investor that has a step up taking their equity ownership over 20%, they would be required to sign a full personal guarantee on the loan and potentially have the risk of pledging personal assets if there is a collateral shortfall. I hope this helps. If you have additional questions on structure you can reach me here or directly at redacted

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