Deal for 40% of the company

searcher profile

January 30, 2025

by a searcher from Rice University - Jesse H. Jones Graduate School of Business in Houston, TX, USA

Hi Searchfunder community!

I have a business I'm looking to acquire where the seller wants to start with 40% equity, and then sell the remaining 60% in 3-5 years. Seller is in his 80's so I believe him. EBITDA is high $2.5 mil + so starting with a smaller portion makes sense for me financially as it would be more affordable. Disregarding all the complications of running the business with that split for now ... what would be the challenges on the lending/deal side for this? I read that SBA requires >51% ownership somewhere (unsure if true). If I wanted to bring on additional investors for the down payment would that be possible? Would love to speak with someone that has experience in this type of situation.

Tom

4
30
382
Replies
30
commentor profile
Reply by a professional
from Allegheny College in Philadelphia, PA, USA
Hey Tom – Congrats on finding a potential deal! This type of arrangement definitely requires strong contractual protections to safeguard your interests. For example, you’ll want a right of first refusal in case he passes away or decides to sell, ensuring you have control over that majority stake.

Bringing in other investors is certainly possible—you’d typically structure this through another LLC (HoldCo), which would own the 40% stake you’re purchasing. Your other investors would be members of HoldCo, with ownership divided among your other investors at the HoldCo level.

Management and decision-making authority can also be addressed contractually, so while the structure may seem complex at first, the right agreements can provide clarity and protection.

Happy to chat further—feel free to email me at redacted or connect on LinkedIn, and I’d be happy to provide some pointers!

And of course, the general legal disclaimer: I do not know all of the facts, so this is not legal advice, and I am not your attorney.
commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
I would be happy to have a discussion and go over financing options. You can now, using the SBA 7A loan program, purchase any portion of a business with SBA financing. However, if any individual seller(s) retain 20% or more in equity, they are required to sign the personal guarantee as well. We do not find that many sellers willing to do this. Secondly, the SBA lender is going to require a first position lien on the business assets of the company, so in essence the portion of the business and cash flow associated with the seller's retained portion of the business is at risk in the deal as well, so you would need to be sure they are comfortable with that.

Outside of the SBA 7A loan program there are not many other programs for financing for partial business acquisitions. And most that do exist will still likely want to leverage the business. Happy to discuss at any time at redacted
commentor profile
+28 more replies.
Join the discussion