Use an SBA Partner Buyout Loan to Acquire Their Interest in the Company

September 18, 2025

Business partnerships can be highly successful ventures, but circumstances often arise where one partner needs to – or wants to – exit the company. Whether due to retirement, career changes, or strategic decisions, a business partner buyout is an opportunity for the remaining owner to gain complete control of operations.

For business owners throughout the Southeast Texas Gulf Coast region, navigating a partner buyout requires careful financial planning and adequate funding. Fortunately, the Small Business Administration (SBA) offers specialized financing solutions that can make these transitions smoother and more affordable for the buying partner.

Understanding your partner buyout financing options is crucial for maintaining business continuity while ensuring all parties receive fair compensation. Find out why an SBA partner buyout loan may provide the capital necessary to buy your partner’s share, while offering favorable terms to support your business’s long-term success.

How SBA Partner Buyout Financing Works

The Small Business Administration (SBA) is a federal agency dedicated to encouraging small business growth by making financing options more accessible, especially for growing companies and established businesses.

Their primary way of supporting businesses is by partnering with banks, such as Texas Gulf Bank, to provide an SBA loan guarantee on a portion of the loan amount to eligible small business owners.

When you choose to go through the SBA for financing a partner buyout, the process follows a structured approach designed to protect all parties involved. Usually, but not always, partners have a “Buy-Sell” agreement. This document outlines the buy-out terms, such as price, triggering events, payout arrangements, and how the payments will be funded. If that agreement is not in place, the lending bank may want to see a purchase agreement or Letter of Intent that describes these essential terms.

An SBA loan provides specific advantages for partner buyout situations. The loan term can extend up to 10 years, giving you manageable monthly payments that may align with your business cash flow.

Additionally, there’s a minimum 10% equity requirement from the buying partner which can be met if you already own 10% or more of the business. The Lender may require additional equity.

The SBA Partner Buyout Process

There are several key steps involved in the partner buyout process when going through the SBA:

The lender collects a completed loan application package, including historical and projected financial information for the business and personal owners who have 20% or more ownership post-sale.
A comprehensive review looks at whether or not the business can manage the additional debt service while maintaining operational stability.
The lender analyzes credit risks through financial reviews, borrower interviews, background checks, and inspections.
Loan approval is conditional upon a satisfactory business valuation, which functions like an appraisal.
The business valuation must support the purchase price being paid for the partner’s share.

When everything checks out and all parties agree to close, the lender’s legal counsel prepares the loan documents and reviews the purchase documents between buyer and seller. An intermediary, such as an escrow attorney service, may handle the closing and coordinate funding, much like a title company manages real estate transactions.

Common Scenarios for SBA Partner Buyouts

Going through the SBA for a partner buyout is not for everyone. It’s important to evaluate whether your situation fits the criteria for this type of lending transaction.

Consider these common situations where business partners may consider SBA financing for buyouts rather than other financing options:

Retirement Without Seller Financing: A partner may be ready to retire and sell their interest, but doesn’t want to provide seller financing. Instead, they prefer to receive a lump sum payment and completely exit the business relationship.
Limited Collateral Value: The business assets may not offer sufficient collateral value to protect a traditional lender in a liquidation situation. SBA backing helps mitigate this risk for the bank.
Goodwill-Heavy Valuations: When the business valuation comprises an excess of goodwill or intangible value, traditional bank loans become more challenging. The SBA’s guarantee structure may be better suited to accommodate these types of businesses.
Extended Repayment Needs: The buyer needs a longer-term loan to make the payments affordable. The SBA offers longer terms than a typical loan, making the buyout financially feasible for some borrowers.

If you believe your business situation fits one of these common scenarios, we recommend you apply for an SBA loan through our bank. However, it’s essential to know which specific loan you should apply for that provides the best solution for your needs. The SBA offers multiple lending options, including an SBA 7(a) loan, so it’s crucial to understand how each loan type works.

Consider an SBA 7(a) Loan for Partner Buyouts

The SBA 7(a) loan is often used for business acquisitions and partner buyouts. These loans provide a 75% SBA loan guarantee to the lender (e.g. Texas Gulf Bank), which helps mitigate the risks associated with a change in ownership of a business.

This type of financing offers several advantages over conventional bank loans. The government backing allows lenders to approve loans that might otherwise be too risky under traditional underwriting standards. The benefit to your business is that the extended repayment terms make the debt service more manageable for the cash flow of your business.

Business owners may also benefit from competitive interest rates and flexible use of loan proceeds. For example, you can use the funds to buy out a partner’s complete ownership stake while maintaining sufficient working capital for ongoing operations.

Required Documentation for Your Application

When applying for an SBA partner buyout loan, we require comprehensive documentation to evaluate both the business and personal financial strength. The documentation requirements include the following key elements.

Proof of stability in the financial performance of the business with historical and projected cash flow sufficient to repay the SBA loan and all other debts of the business.
Last 3 years of business tax returns.
Business financial statements over the last three fiscal years and the current fiscal year.
Debt Schedule showing all other debts and repayment terms.
Projected financials post-sale, with detailed assumptions.
Business background information, including an explanation for how the selling partner will be replaced and the impact on the business post-sale.
Personal financial information and tax returns from the owners with 20% or more interests.

Several factors can enhance your chances of approval and improve the overall transaction structure. It’s very helpful when the seller is willing to offer partial seller-financing in addition to our bank’s loan. This arrangement reduces the lender’s risk while potentially providing the seller with ongoing income.

Interest rates are generally higher on these types of loans compared to real estate loans due to the risk level being higher for the bank. However, SBA backing helps keep rates more competitive than they would be without a government guarantee.

The partnership agreement also plays a crucial role in determining the buyout structure and valuation method. Having a well-drafted agreement in place before applying may help streamline the entire process and reduce potential conflicts.

How Texas Gulf Bank SBA Specialists Can Help

Texas Gulf Bank has a dedicated SBA lending team, with specialists who understand the complexities involved in partner buyout transactions.

Having been involved in numerous loans to buy out a partner, our experience can help all stakeholders navigate the process, avoid pitfalls, maintain a suitable pace, and structure the loan to meet the needs of both the borrower and the bank.

We work closely with local business owners to ensure all documentation is properly prepared and submitted efficiently. This attention to detail helps avoid delays that could complicate the buyout timeline.

Our specialists can also recommend approaches that benefit both the buying and selling partners while satisfying SBA and the Bank’s requirements.

Choose Texas Gulf Bank for Your SBA Partner Buyout Loan

When selecting a lender for your SBA partner buyout loan, experience and resources make a significant difference in your success. Texas Gulf Bank offers strong SBA lending experience and dedicated resources specifically for these complex transactions.

With extensive experience in SBA loan transactions, we can help you efficiently navigate the buyout process. Having served the Southeast Texas Gulf Coast region for 110+ years, our bank is ready to work directly with you to support your goals and provide personalized service.

Contact Texas Gulf Bank today to discuss your partner buyout financing needs. Find out why an SBA loan could be the right choice to become the sole owner of your business.

All loans subject to credit approval