Financing Management Buy-In: these are the possibilities

You like the idea of entrepreneurship and are considering a Management Buy-In. Financing plays an important role. You will need to come to an agreement with the owner about the amount you need to take with you if you want to buy in. Do not underestimate that you will need to have significant equity in order to reach a deal. There are several options for financing a Management Buy-In.

Increasingly, there is stacked financing. This consists of equity on the one hand and bank financing, informal investors or a vendor loan from the previous owner on the other.

Own resources

Without equity, a Management Buy-In is not an option. How much you need depends on the size and value of the company, but you can be sure that no bank will agree to a loan without equity. Count on an equity investment of 25 to 30 percent of the total amount.

Bank Financing Management Buy-In

Banks are not very forthcoming when it comes to financing for a Management Buy-In. This is because there are few banks active in this market and therefore little competition. Nevertheless, it can be done provided the company is doing well, the transaction price is reasonable and the profile of the MBI candidate fits the company. Keep in mind that a bank will base the loan on current profits and not on grand future scenarios.

Informal investors

Informal investors are private investors. These have often been successful entrepreneurs themselves, who have accumulated so much wealth through their own venture(s) that they want to invest it in other businesses. They are also called business angels called business angels. They are often experienced entrepreneurs, who invest in different ways. Some want as much return as possible, others go by their gut feeling or choose an industry or cause they believe in. Informal investors can therefore react very differently to your proposal for a Management Buy-In.

Vendor loan as financing Management Buy-In

The owner whose business you are taking over can help you with financing. This is called a vendor loan. It is actually a kind of deferred payment. You pay part of the sales price in installments. The vendor loan does not depend on future profits, but only on contractual obligations. The vendor loan can partially replace your own contribution. The term is relatively long, about 5 to 7 years. Sometimes it is the only way to secure financing.