Partner buyout loan: how to finance buying out a partner

Key takeaways

Partner buyout formulas

Many lenders look for DSCR of about 1.25x or higher. Each lender sets its own standard.

Worked example (illustrative numbers)

One of two owners buys out the other's 50% share. All numbers are illustrative.

• Buyout price for the 50% share: $600,000; 90% financed → $540,000 loan, $60,000 cash
• Loan at 10.00% for 10 years → about $7,136 a month
• Existing annual debt service: $60,000 → total ≈ $145,634 a year
• Annual cash flow: $200,000 → DSCR = $200,000 ÷ $145,634 ≈ 1.37x

Illustrative only. Real terms depend on the lender, the SBA and your file.

What lenders look at

Expect a lender to review:

• Three years of business tax returns and current financials
• The buy-sell or operating agreement and the valuation method
• Existing debt and whether it will be refinanced
• The remaining owner's role, experience and personal finances
• Whether revenue depends on the departing partner

Financing options

SBA 7(a): can finance a change of ownership, including some partial buyouts, with long terms. Rules for partial changes of ownership and equity have changed; confirm current SBA requirements with a lender.

Conventional bank loan: may be faster for strong businesses with low existing debt.

Departing partner note: the exiting partner carries part of the price, often subordinated to the bank.

Combination: many buyouts use cash, a bank loan and a partner note together.

Equity injection and timing

Most acquisition lenders want the buyer to contribute cash. SBA lenders typically look for a minimum equity injection on a change of ownership (commonly cited as 10% of total project costs), and part of that may come from a seller note only if the note meets current SBA standby rules. Conventional lenders often ask for more.

Plan on 60 to 120 days from signed letter of intent to closing for many partner buyouts, longer if real estate or a landlord consent is involved. Timelines vary by lender and by how fast you can deliver documents.

• Week 0–2: agree price method, share tax returns and buy-sell agreement with a lender
• Week 2–6: business valuation, term sheet
• Week 6–12: underwriting, SBA authorization if applicable, consents from landlord or lenders
• Closing: legal documents, funding, transition

Common mistakes

• Agreeing a price before checking what cash flow can support
• Ignoring the departing partner's personal guarantees on existing loans
• Not planning for lost production if the partner was a key producer
• Skipping tax advice on how the buyout is structured

SBA program limits (checked against sba.gov on November 2, 2026)

• How these limits apply to a hospital purchase: the 7(a) cap usually covers goodwill, equipment and working capital, while a 504 loan is often paired with the building when boarding or kennel space is owned.
• SBA 7(a) maximum loan amount: the SBA lists $5 million.
• SBA 7(a) maturity: generally up to 10 years for business acquisitions, equipment and working capital, and up to 25 years for real estate.
• SBA 504 maximum (CDC portion): the SBA lists $5.5 million, for owner-occupied real estate and long-life equipment.
• SBA Express maximum: the SBA lists $500,000 with up to a 50% guarantee.
• Equity injection and seller-note standby rules for changes of ownership are set in SBA SOP 50 10 and have changed more than once. Confirm current requirements with a lender.
• If the buyer is purchasing the clinic real estate alongside the practice, ask the lender whether one blended term or separate notes for the building and the business fits better.
• Interest rate caps and guarantee fees change; we do not state them here. See sba.gov.

Rates, caps and fees change. Check the official source before you rely on any figure: SBA.gov: 7(a) loans.

• SBA SOP 50 10: Lender and Development Company Loan Programs
• SBA.gov: 504 loans
• SBA.gov: Terms, conditions and eligibility

Common questions