Financing employee ownership transitions
Most employee ownership transitions are primarily debt-financed, in the form of loans to the business, so it is important to ensure that the business can take on the debt servicing. Because of this, one of the most important first steps in assessing fit of an employee ownership transition is a feasibility assessment that incorporates a debt capacity analysis.
Businesses that work with Project Equity to transition their businesses to employee ownership are eligible to apply for flexible and affordable financing through Accelerate Employee Ownership.
For worker cooperative transitions, equity financing is increasingly being utilized through issuing non-voting preferred equity shares, including through Direct Public Offerings (DPOs). The employees’ buy-in amount becomes equity, but does not cover the complete sale price. The following is an example of how a worker coop conversion could be financed for a business with a sale price of $2 million. For more examples, read our financing case studies.
| Example: Financing sources for a worker coop conversion | |||
| Source | Amount | Percent | |
| Senior Debt | $900,000 | 45% | |
| Senior Debt Line of Credit (for working capital) |
$200,000 | 10% | |
| Subordinated Debt Seller Financing |
$300,000 | 15% | |
| Subordinated Debt or Preferred Equity |
$500,000 | 25% | |
| Worker-Owners’ Equity (buy-in) | $100,000 | 5% | |
| Total | $2,000,000 | ||
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Just released!
New studies in regions across the U.S., including Washington State, Berkeley and Long Beach, CA show millions of businesses at risk and point to employee ownership as a solution.
