What should you consider when buying out a business partner or shareholder?
Greg Taylor · Posted on: March 5th 2025 · read
So, you’ve decided to buy-out a business partner / shareholder.
You might have managed to raise the finance before, so you know all about the endless questions the lenders will ask you like: annual accounts, management accounts, credit score, bank statements, vat returns, projections, the revised management structure plus if you have tangible security etc., etc.
In other words, you have all your ducks in a row, and you’ve got as much a chance of success as anyone else.
Well not quite – not all lenders and finance facilities are created equal. If you are looking for a finance facility to buy-out a business partner or shareholder in your current business, you need to think like a lender.
What’s the big deal you may ask?
"The big deal is that lenders see partner buy-outs differently from standard business loans. Unlike financing for expansion, equipment, or working capital, where there’s a clear return on investment, buying out a shareholder is viewed as a shift in ownership rather than an income-generating move. That means lenders are more cautious, and the criteria for approval can be stricter."
Lenders don’t just lend on history
Banks and other lenders rely on past data to make assumptions about a borrower’s ability to repay the new finance, so all the documents you provide are evidence that you knew what you were doing yesterday and that this will continue in the future.
However, when it comes to purchasing a business or buying out a business partner / shareholder this no longer holds the same validity.
When buying out a partner or co-director the funds raised won’t go back into the business but disappear into the pocket of one of the companies’ prime assets – the outgoing partner or shareholder. So, the new funding could be considered a drain on the business.
For lenders, this raises concerns:
- Who will fill the departing partner’s role?
- Do you have the expertise, contracts, and management structure to ensure continuity?
- Will your business still operate as efficiently without them?
For some lenders, that’s a big risk to take, too big for plenty of lenders… so your business plan needs to highlight the significant contribution you made to building the business up, that the contracts are yours and that they will continue to trade with you. You need to be able to show that the new management structure will pick up the role, responsibilities and expertise that is leaving once you buy-out the business partner or shareholder.
The bank or lender may also want your outgoing business partner to confirm that they are not setting up a business in competition with
Return on Investment
Usually when you take out a new finance facility you’ve got the plan all tied up. It gives a return on investment. You need X amount of cash and when you have utilised the money it will generate X and Y as a return… more than enough to pay back your loan plus interest.
From a lenders perspective if you are not going to make more than your investment back then what is the point in borrowing the money?
This is called Return on Investment. So, when you buy-out a business partner – there doesn’t appear to be a return to be made.
To improve your chances of approval, you need to demonstrate a return from the buy-out, such as:
- The return could be a reduction in the salary of the business partner or management charges you’re paying to corporate shareholder
- An increase in sales if you plan to capitalise on a market which your business partner had no experience as you diversify into complimentary markets
- The removal of obstacles to a particular income stream (maybe your business partner alienated some of your customers)
- Reducing financial burdens if your business partner had loans to the business upon which he took large interest payments which will cease when he/ she is paid out.
Navigating the Evolving Landscape
The evolving lending landscape is not just about products; it is about accessibility. With the rise of challenger banks and niche lenders, clients are often overwhelmed by choices they did not know existed. Our role is to demystify this landscape, simplifying the process and alleviating the burden of navigating it alone.
As professional advisors in the banking & finance space our mission is clear: to navigate the complexities of lending with precision, empathy, and expertise, ensuring our clients achieve their financial objectives with confidence and clarity.
We do not just facilitate lending; we empower clients by acting as their trusted advisors and advocates. By leveraging our collective experience and industry insights, we streamline the lending journey, minimising stress, and maximising efficiency. From application to completion, our commitment to client-centric service remains unwavering.
How can MHA help you?
So, if you’d like to talk to one of the team about buying out a business partner, shareholder or about buying a business, we’d be delighted to talk with you – [email protected]
