I run a 12-person landscaping company and two of my long-time foremen approached me about buying me out. I'm open to it, but they have almost no capital. Has anyone seen employees get an SBA or other small business loan to fund a buyout? Curious if lenders even take that seriously.
Exit Strategy
Can employees get a small business loan to buy you out?
They cann, but it's not easy. SBA 7(a) is the usual route. The employees will need decent credit, a down payment (usually 10%), and the seller has to be willing to carry a note for part of it. If your foremen have zero cash, it's going to be a hard sell.
Just sold my HVAC business to my lead tech. He got an SBA loan through a local bank. Took about 4 months. I had to finance 15% and stay on as a consultant for a year. It worked, but it was a grind.
Honestly, if they have no skin in the game, why would a bank lend them anything? Maybe they can do a seller-financed deal with you instead. You'd be the bank. Risky but simpler.
I should add: one of them has a 640 credit score, the other has no idea. And neither has more than maybe $5k saved. So yeah, I'm skeptical.
640 is borderline for SBA. Some lenders will work with it, but they'll want collateral. Your equipment might be the collateral. Are they willing to personally guarantee? That's a big ask for employees.
This is why I'm never selling to employees. Too much hand-holding. I'd rather sell to a competitor and walk away.
Turnip, that's a bit harsh. Some employees make great owners if they get the chance. But yeah, the financing is the hard part.
It's not harsh, it's realistic. Banks look at risk. If the employees have no money and no experience running a business, they're a high risk. Unless the seller holds a note, it's probably not happening.
Appreciate the input. I think I'll suggest they talk to a lender first and see the response before we go any further. If it's a dead end, I'll just list it.