Loan to Buy Out Family Business


Question – I have worked for my father my whole life (30 yrs) in the manufacturing field. I am currently the office manager of his company which he is in partnership with 1 other person. He would like to retire as soon as possible and there was talk at one time of me buying his portion of the business but I have no collateral or available funds to do that. Once sold he is going to stay on for a year as a consultant The business is profitable and always has been and the future looks the same. My question is, is there a way to get financing to for this somehow or at least a down payment?


Our Response – There are a couple of options in the buyout of a family business.  Your situation is a little difficult since there is another partner and if you were to go and get a loan through the business, that partner would have to be a personal guarantor since they own half of the company.  Guessing that the partner would not want to be a personal guarantor (nor would I recommend it for you) you are left to raising capital through personal channels.

One channel that I would strongly recommend looking into is seeing if your father would be interested in holding a note where you pay him like you would a bank.  The benefit to you is that there may be difficulty since you don’t have collateral or available funds to get money from the bank, leaving you with no access to capital or higher interest rates.  I assume your father doesn’t want to see this business fail and wants to see you succeed so he could provide some assistance here by becoming the bank.  He can benefit by having a consistent stream of income to fund retirement and will reduce his tax bill by not taking all of the money at once (talk to an accountant to see if this is a benefit in his situation).  If he isn’t interested in a long term payment, he may be interested in a two or three year payment until you can build the funds to get funding from the bank or hold 20% so you would have a down payment.

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