Answer
Can I get a business loan to buy out my partner?
Yes — a partner buyout is a change of ownership, and the SBA 7(a) is the standard vehicle. How it is structured and what trips it up.
Yes. Buying out a co-owner is treated as a change of ownership, and the SBA 7(a) is the usual vehicle. The business itself can borrow to redeem the departing owner's shares, or you can borrow personally to buy them. Both work; they have different tax and guarantee consequences.
Two structures, and they are not equivalent
- The business redeems the shares
- The company borrows and buys back the departing owner's stake, which is then retired. The remaining owners' percentages rise automatically. Simple, and the debt sits on the business where its cash flow services it.
- You buy the shares personally
- You borrow and purchase the stake directly. You own more of the company, but the debt is yours and has to be serviced from distributions — which has different tax treatment and a different personal risk profile.
What the lender underwrites
- The business's historical cash flow, not your plans for it. Three years of returns and financials, tested against the new debt at 1.25x coverage or better.
- Whether the business survives the departure. If the leaving partner held the relationships, the licence, or the technical capability, that is a transition risk and the lender will structure around it.
- The valuation. Expect an independent business valuation. A price set by a handshake, or by a formula in an old operating agreement, frequently will not survive underwriting.
- Your capacity to run it alone, documented — not assumed.
Where the money comes from
| Piece | Typical share | Notes |
|---|---|---|
| SBA 7(a) loan | Most of it | 10-year amortization, no balloon |
| Your injection | Often 10% of project cost | Rules follow the change-of-ownership requirements |
| Seller note from the departing partner | 0% to 25% | On full standby, it can count toward part of the injection |
| Earn-out | Varies | Structured outside the loan |
A seller note from the exiting partner is particularly common here, because they usually want the business to survive and often accept terms a third-party seller would not.
What goes wrong
- No buy-sell agreement, or one with a valuation formula nobody can defend. Fix this while everyone is still friendly.
- A departing partner who will not cooperate with diligence. Lenders need their financial information too.
- Discovering the personal guarantee does not release automatically. The departing partner stays on the existing guarantee unless the lender releases them in writing. Make that release an explicit condition of closing — this is one of the most expensive oversights in small business transitions.
- Price set emotionally. A buyout priced above what the cash flow services simply does not finance, however fair it feels.
Questions people actually ask
Does a partner buyout need a business valuation?
For SBA financing, generally yes -- an independent valuation is standard on a change of ownership. It protects the lender, and frankly it protects you: it is the clearest evidence that the price is defensible if the relationship later sours.
Can I buy out my partner with no money down?
Rarely with SBA financing, which requires an equity injection on a change of ownership. The most common way to reduce the cash you bring is a seller note from the departing partner on full standby, which can cover part of the required injection.
Is the departing partner released from the old loan guarantee?
Not automatically, and this catches people constantly. They remain liable until the lender releases them in writing. Negotiate that release as a condition of closing and confirm it afterwards in writing.