Complete & Partial Partner Buyouts

Partner Buyout Loans

A partner buyout loan finances the purchase of a partner’s equity in a business, allowing you to increase your ownership stake, either fully or partially. This loan type purpose is to fund the acquisition of a partner’s equity to achieve complete ownership (100%) or partial ownership (less than 100%), covering the purchase price and related costs.

Complete Partner Buyout

A complete partner buyout is an existing shareholder purchasing the equity owned by a partner resulting in the buyer owning 100% of the equity.

Partial Partner Buyout

A partial partner buyout is an existing shareholder purchasing equity owned by a partner resulting in the buyer owning less than 100% of the total equity.

Equity Buy-in

An equity buy-in is when a non-shareholder purchasing equity resulting in the buyer owning less than 100% of the total equity.

Equity Injections for Partner Buyouts

Partner buyouts involve purchasing a partner’s equity, either fully or partially, with specific equity injection rules.

Partner Buyouts:

  • Complete: Purchasing 100% of a partner’s equity, transferring their full ownership to you.

  • Partial: Purchasing part of a partner’s equity, with the seller retaining some ownership.

  • Equity Injection: The lesser of:

    • 10% of the purchase price.

    • An amount ensuring a debt-to-worth ratio of 9:1 or lower on the pro forma balance sheet (based on the most recent fiscal year and quarter).

  • Exemption: No injection is required if:

    • The buyer has been an active operator and owned 10% or more of the business for at least 24 months, verified by both buyer and seller.

    • The business maintains a debt-to-worth ratio of 9:1 or lower (total debt ÷ total equity).

  • Sources: Must be paid in cash, seller notes for partner buyouts for the purposes of the equity injection are ineligible.

  • Guarantors: Post-sale, owners with 20%+ equity (including the seller, if retaining equity) must provide a personal guaranty. Sellers retaining less than 20% must guarantee the loan for 2 years post-disbursement.

Calculating the 9:1 Debt-to-Worth Ratio

  • What It Is: Measures financial health by comparing total debt to total equity (owner-invested capital). A 9:1 ratio means $9 in debt per $1 in equity.

  • Calculation: Divide total debt by total equity on the pro forma balance sheet (post-transaction).

    • Example: $900,000 debt ÷ $100,000 equity = 9:1 ratio, meeting the threshold. If debt is $1 million, a $111,111 injection reduces it to 9:1 ($1,000,000 ÷ $111,111 ≈ 9).

  • Why It Matters: A ratio above 9:1 signals financial risk, requiring a larger injection to stabilize the business, such as for a service or retail buyout. LoanBox helps you calculate and document this ratio for lender approval.