Key Takeaways
- MBOs represent approximately 15-20% of successful small business exits.
- Typical MBO financing: 10-20% management equity, 40-60% senior debt, 20-40% seller financing.
- SBA 7(a) loans for MBOs require minimum 10% buyer equity with seller standby notes limited to 20%.
- ESOP sales to C-corporation owners can defer capital gains under IRC §1042 when selling at least 30% to the ESOP.
- Vesting schedules with 3-5 year cliff periods protect seller financing against early management departures.
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Test Your Knowledge
1.What percentage of successful small business exits involve MBOs according to the Exit Planning Institute?
2.Under IRC §1042, what is the minimum percentage of a C-corporation that must be sold to an ESOP to qualify for capital gains deferral?
3.What is the maximum SBA 7(a) loan term for business acquisitions?