Four Primary Financing Options

One way or another, there has to be some form of financing for an ownership transition to occur where one or more parties are putting capital at risk to make the deal happen.

D. Brown Management

December 14, 2018 2 minute read

Succession: 4 Primary Deal Financing Methods.

There are four primary sources of financing and most deals will utilize a combination of these.

Seller financing where the current owner takes their money over time. This may come in the form of:

- Progressive buyout by others purchasing a percentage of the shares each year if a sale to management. Or by gifting a percentage of shares each year if a family transaction.
- Note payable to the current owner for the business paid for out of the operating cash flow of the business.

Outside capital from the buyer with the most likely scenario for a significant amount of outside capital coming in from a strategic buyer.

Bank financing of an ESOP.

Bank financing on a term loan for buying the business. This will typically require some combination of outside capital and seller financing, along with proven financial performance, a proven management team, and all 5C’s met.

This Series (29 of 45)

Key Drivers of Value Ownership Transition Timelines Four Primary Financing Options Valuation Math - Multiple of Earnings Valuation Math - Growth Pays

This Series (29 of 45)

Key Drivers of Value Ownership Transition Timelines Four Primary Financing Options Valuation Math - Multiple of Earnings Valuation Math - Growth Pays

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