Funding an MBO

16 July 2021

The vast majority of management buy outs start in the tearoom, but for many of them they don’t ever go past that.

The main reason that an MBO doesn’t happen is because the people involved believe that there are not enough funds to move forward.

Of course, even with a few managers behind it, there is still a good chance that there is not enough financial clout in order to fund a buyout. Which means that there needs to be a third party involved in the process.

So, if you are thinking about an MBO then here are two ways to approach funding it, if you don’t have the financial backing yourselves, to get it in motion.

A business loan

One of the first options that is open to you is a MBO business loan.

These loans are designed specifically for this purpose and will offer you the funds that you need in order to make the buyout, upon meeting the lenders criteria.

If approved and funded, you will make the repayments that are needed on a monthly basis in order to pay back the loan. Usually this is over a 1-6-year term, though some funders will look at up to 10-year terms.

In order to approve this loan, the lender is going to want to look at the credit history for each of the managers that are applying for the loan, along with the financials of the business.

They will also consider what roles each applicant has within the business and their respective duties. If there are any weak links in the chain then the entire thing could collapse.

You will also be asked by the lender to notify them how much each of you is going to be able to invest into the MBO.

The more that you can put towards the funding yourself, then the lower risk that they will see you as.

You could be offered funding as an unsecured loan. However, for larger amounts, you may be asked to find some security.

An asset backed loan

If you are worried about the idea of borrowing for an MBO based on personal circumstances, then another option open to you is an asset backed loan.

These loans are also known as leveraged buyouts, as they are based on the companies assets.

This particular type of loan is often confused with refinancing. However, it is not the same.

An asset backed loan will mean that the lender will look at the bigger picture of your company and will potentially lend based on the balance sheet of the business.

If they are confident that the business is going to be successful, and is going to be capable of making the repayments, then the loan will be approved.

An asset backed loan is not for everyone, however it does have some benefits. The main one is that it is flexible and as the business grows you will, potentially, be able to increase your borrowing as you need.

If you are thinking about an MBO, then having funding options is always going to be good news for you.

So, why not consider what options are open to you and see whether or not you can grow your business into something amazing?

Looking to raise funds for an MBO?

Contact The Funding Store today to discuss, 01908 880420 or email us info@thefundingstore.co.uk

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This article has been produced by www.TheFundingStore.co.uk for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of the information contained in this article is accepted by HPG Holdings Ltd. In all cases appropriate professional legal and financial advice should be sought before making a decision.

This article has been produced by www.TheFundingStore.co.uk for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of the information contained in this article is accepted by HPG Holdings Ltd. In all cases appropriate professional legal and financial advice should be sought before making a decision.