Is It Time to Buy Out Your Business Partner?

Is It Time to Buy Out Your Business Partner? Buying Out a Business Partner

The COVID-19 pandemic has caused so much to change this past year that it makes sense that owners are starting to look at how their businesses are structured to maximize profits. A partnership may have seemed like a no-brainer when you started your company, but now that so much has changed, that may not be the case anymore. Let’s take a look at some of the pros and cons of buying out your partner and how to finance the transaction to see if this is the right move for your business.

Pros of Buying Out Your Partner:
• You will earn all the profits
• You get to make all the decisions for the business
• No more worrying about how your partner’s actions affect the business

Cons Of Buying Out Your Partner:
• You no longer have someone to split the costs and the risks
• You have to make all the tough decisions on your own which could be added stress

While there are other pros and cons to consider, these are a great place to start. If you feel like your pros are outweighing the cons, then it’s time to move on to step 2: how will you pay for the buyout?.

How to Pay for a Business Partner Buyout

If you decide that buying out your business partner is the right move, you’ll need to decide how you’ll pay your partner if you don’t have enough cash available. Here are some options to consider to secure the cash you need:

• Traditional Bank Loan
• Merchant Cash Advance
• Unsecured Working Capital Loan

Let’s dive deeper into each of these options to see which one is right for you.

Traditional Business Bank Loan

A traditional bank loan will likely come with the most attractive terms but will be difficult to obtain because the money will not directly benefit the company in any way since it will go right into your partner’s wallet. Many banks simply won’t finance this type of transaction.

Even if you do find a bank willing to take on the risk, approval for a traditional business bank loan can take months, which may be a time period that’s not suitable for your plans.

Merchant Cash Advance

A merchant cash advance is an option for the buyout, but you can expect high rates and short terms that may strain your cash flow.

When you take out a cash advance, the company typically purchases a fixed amount of your future credit card sales at a discount rate of about 30 – 38%. The advance is paid back from a percentage of your daily credit card receipts until the amount is paid in full.

The higher your sales, the quicker the advance is paid back thus raising the cost of funds significantly. In fact, APRs can range from 50% up to 200% based on how quickly you pay it back! This is an option of last resort.

Working Capital Loan

An unsecured Working Capital Loan can be a great option for small business owners looking to buy out a business partner. This type of loan is perfect for small companies that are experiencing strong performance but need an injection of capital to take advantage of an opportunity, without giving up equity. When obtaining a working capital loan through ARF Financial, collateral is not required for loan amounts up to $450,000 for a single unit and $675,000 for multi-unit business.

Unlike a merchant cash advance, payments are fixed, and you can enjoy flexible terms up to 24 months helping you preserve cash flow during the transition.

If you’re ready to buy out a business partner, Apply Now for a Working Capital Loan through ARF Financial. Applying through our online application is free and it won’t affect your credit.

Obtaining a quote does not obligate you. We’ll simply contact you so you can learn more about the loan process and terms, and let you know how large of a loan you can expect to be approved for to buyout your business partner. You’ll also be paired with a seasoned loan consultant who can help answer your questions and provide expert advice about buying out your partner. To say it simply, we’re here for you from start to finish.