Business partnerships end. That’s not pessimism, it’s just how it goes. Partners retire. Health changes plans. One person wants to slow down while the other wants to build.
Whatever the reason, the partner staying behind faces the same question: how do you pay for the other half of the business without draining it?
I’ve been packaging SBA loans since 1982, and partnership buyouts are one of the most common deals crossing my desk right now. Most owners don’t realize how well the SBA handles them. Here’s what you should know before that conversation with your partner ever starts.
The Loan Follows the Cash Flow
A partnership buyout uses the SBA 7(a) or SBA 504 program to purchase your partner’s ownership interest. You can buy their full stake or just part of it. Partial buyouts are allowed, and they happen more often than people think.
The business itself carries the debt. That means the numbers decide everything.
Before any lender says yes, they need to see that the business generates enough cash flow to cover the new payment at a 1.25x debt coverage ratio or better. In plain terms: for every dollar of loan payment, the business needs $1.25 in available cash after expenses.
That calculation starts with EBITDA. Net income, plus interest, plus depreciation and amortization, plus documented owner add-backs. I run this analysis for free on every buyout deal, and you keep the full spreadsheet whether you work with me or not. It’s worth knowing your number before you sit down to negotiate a price.
The Goodwill Problem
Here’s what kills most buyouts at a conventional bank: the deal is mostly goodwill.
You’re buying an ownership stake, not a building or a truck. There’s often nothing to pin collateral to. Conventional lenders see that and back away.
SBA lenders don’t. If the cash flow supports the debt, goodwill can be financed. That one difference is why partnership buyouts belong in the SBA world, and why owners who only talk to their regular bank often walk away believing the deal can’t be done. It usually can.
What the Financing Looks Like
The structure on a well-packaged buyout loan:
- Up to 100% financing available. Your out-of-pocket can be far smaller than you’d expect.
- Longer loan terms preserve your cash flow. Stretching the debt over more years keeps the monthly payment from choking the business you just fought to keep.
- Full or partial buyouts qualify. The departing partner doesn’t have to sell everything at once.
- Loan amounts run higher than most conventional lenders will consider for this deal type.
One SBA requirement worth knowing upfront: the partner being bought out generally needs to own at least 20% of the business. If you’re buying out a small minority stake, talk to your lender before assuming the SBA route works.
The Timeline
A complete, well-packaged buyout loan closes in about six weeks. Weeks one and two cover application and documents. Weeks three through five are underwriting, business valuation, and approval. Week six is closing.
The single biggest factor in hitting that timeline is preparation. Three years of business tax returns, three years of personal returns, current financials, and a clear picture of the buyout terms. Show up with those and the process moves.
Start Before You Need To
Here’s my honest advice, even if a buyout is nowhere on your calendar: know your numbers now.
Partnership conversations start suddenly. A health scare, a spouse’s job change, a disagreement that’s been simmering for years. The owner who already knows what the business can support negotiates from strength. The one who’s guessing negotiates from hope.
Text me at (214) 726-9000 and I’ll run a free EBITDA analysis on your situation. No cost, no obligation. You’ll know quickly whether the numbers work, and you’ll have the spreadsheet to prove it.
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