Funding an employee ownership trust: how the sale is paid for
An employee ownership trust has no money of its own, so the purchase is funded by the company it buys. Typically some of the…
Acquisition finance
Employee ownership trust finance: lenders and debt options for an EOT purchase
Compare lenders and debt options for an employee ownership trust purchase: term loans, asset-backed facilities, security and what lenders assess.
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- Borrower
- The trading companyNot the trust
- Debt is used for
- A larger payment on completionThe rest is usually paid over time
- Lenders assess
- Maintainable profit and cashAfter the deferred payments to the sellers
- Security
- Usually a company debenturePersonal guarantees vary by lender
In short
What you need to know.
Employee ownership trust (EOT) finance is the funding that lets a trust buy a controlling stake in a company for its employees.
Most of the price is usually paid to the sellers over time from the company's future profits, so external debt is used to increase the payment on completion. The company, not the trust, borrows, and lenders assess it much like management buyout debt: on maintainable profit, cash flow after the deferred payments and the strength of the team staying on.
What EOT debt can be used for
A larger upfront payment
paying the sellers more on completion than the company's cash alone allows.Refinancing existing debt
bringing current borrowing into one facility as part of the transaction.Working capital after completion
replacing cash paid out to the trust, so the business can trade normally.Transaction costs
legal, tax and valuation fees for the company's side of the deal.
About employee ownership trust finance
Specialist knowledge. Better outcomes.
An employee ownership trust is a trust that buys a controlling interest in a company and holds it for the benefit of all eligible employees.
Owners choose it to sell to the people who built the business with them, and, where the conditions are met, the sellers can claim capital gains tax relief on the sale. For disposals on or after 26 November 2025 that relief was reduced: half of the gain is now taxed when the shares are sold and the other half is deferred, as set out in the government's policy paper on the relief reduction. HMRC's capital gains manual on employee-ownership trusts sets out the relief. The catch is that the trust has no money of its own. Every pound the sellers receive ultimately comes from the company.
Smart Funding Solutions is a broker. Where debt is part of an EOT sale, we approach lenders on our panel whose appetite for ownership transitions fits the size and sector of the business. Our guide to funding an employee ownership trust explains the mechanics in full; this page focuses on arranging the finance.
- Access to 300+ lendersWhole-of-market search across our lender panel.
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Lenders on our panel
EOT debt is specialist lending. Among lenders on our panel, the terms we hold for FW Capital's South Yorkshire fund include employee ownership trust deals, alongside management buyouts and buy-ins, and allow it to rank behind an existing lender. ThinCats lists financing for a sale to an employee ownership trust among its products, from around £1 million. Beyond that, we approach lenders whose appetite for buyouts and ownership transitions fits your company's size and sector, and confirm with each that it will fund an EOT structure before we present the case.
A company with a strong debtor book can also use invoice finance to release cash on completion, and a company owning its premises can borrow against them through a secured business loan.
Risks to weigh up
- A company that borrows heavily and pays out its cash on completion has less room for a bad year.
- If profits fall, the sellers' deferred payments can be delayed, because lenders rank first.
- The tax relief depends on conditions that continue after the sale, so take specialist tax and legal advice.
- A trade sale may deliver more cash on completion, so compare the two before committing.
Underwriting
How lenders assess an EOT deal
Lenders treat EOT debt much as they treat management buyout finance, with a few differences. The borrower is the trading company. The directors no longer own the shares after the sale, so some lenders rely more on company security and cash flow than on personal guarantees, while others still ask for guarantees from the directors. The sellers' deferred payments normally have to rank behind the lender's debt under a formal agreement, with payments to them stopping if the company breaches its loan covenants.
01
Maintainable profit
profit after paying a market salary for the roles the sellers are leaving.
02
Cash after deferred payments
whether the company can service the loan and pay the sellers, with headroom.
03
The team staying on
whether customers, suppliers and know-how sit with the people who remain.
04
The price
an independent valuation supporting it, as the trustees must take reasonable steps to make sure they do not pay more than market value.
05
Security
a debenture over the company and, where available, its debtor book, property or equipment.
Checklist
Documents to have ready
- Three years of filed accounts and current-year management accounts.
- The independent valuation and the heads of terms, including the deferred payment schedule.
- A forecast for the company after the sale, showing loan repayments and payments to the sellers.
- The structure chart and the proposed trustee arrangements.
- Details of the management team who will run the business after completion.
- Aged debtors, creditors and a fixed asset register.
Side by side
Compare your options
How the main business finance structures work. Lenders set their own terms, so treat this as a guide to the questions to ask.
| Option | How you repay | Security | Often used for |
|---|---|---|---|
| Unsecured business loan | Fixed instalments, usually monthly | No charge over assets; a personal guarantee is usually required | Growth, stock, tax bills and cash flow |
| Secured business loan | Fixed instalments, often over a longer term | A charge over property or other assets | Larger sums, property and refinancing |
| Revolving credit facility | Interest on what you draw; repay and redraw | Varies by lender and case | Recurring or uneven cash flow gaps |
| Merchant cash advance | A share of future card takings | No charge over assets | Card-taking businesses with uneven months |
| Asset finance | Regular payments over the life of the asset | The asset being financed | Equipment, vehicles and machinery |
| Invoice finance | Settled as customers pay their invoices | Your unpaid invoices | Businesses waiting on customer payment |
General information only. Every lender has its own criteria, and all finance is subject to status.
Where the money comes from
| Source | Paid to the sellers | What decides how much |
|---|---|---|
| Surplus company cash | On completion | How much working capital the business needs to keep |
| A term loan to the company | On completion | Maintainable profit and cash flow after all payments |
| Asset-backed facilities | On completion | The debtor book, property and equipment the company owns |
| Deferred consideration | Over several years | Future profits and how long the sellers will wait |
In most smaller EOT sales, deferred consideration is the largest part of the price. Debt is used to increase what the sellers receive on day one, and it has to be repaid before, or alongside, the deferred payments.
How we arrange EOT funding
- Test the numberswe work with your accountant to agree maintainable profit and how much debt the business can carry alongside the deferred payments.
- Shape the structurewe look at how cash, debt, asset-backed facilities and deferral fit together.
- Approach the right lenderswe go to lenders on our panel with appetite for ownership transitions of that size.
- Compare offerswe set out cost, covenants, security and guarantees side by side, and stay involved to drawdown.
Lenders make every credit decision. It is free to enquire; any broker fee is disclosed separately before you proceed. Start with our Instant Quotes tool, or see our acquisition finance hub for other ways to fund a change of ownership.
Got a deal in mind?
Instant employee ownership trust finance quotes
Tell us how much you need to borrow. Instant Quotes shows which lenders on our panel fund purchases like yours, then a broker structures the deal and presents it to them.
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FAQs
Questions clients ask
Who borrows the money in an employee ownership trust sale?
The trading company borrows, not the trust. The company then contributes the money to the trust, which passes it to the sellers as part of the price. The lender takes its security over the company.
Can an EOT purchase be funded entirely with debt?
Rarely. Lenders size debt on what the company can repay from its profits, and the sellers are usually paid most of the price over several years from future profits. Debt is normally used to increase the payment on completion, not to fund the whole price.
Do the directors give personal guarantees on EOT debt?
It depends on the lender. Because the directors do not own the shares after the sale, some lenders rely more on company security and cash flow. Others still ask for guarantees, sometimes for part of the debt. We set out each lender's position before you proceed.
Do the sellers' deferred payments rank behind the bank?
Usually, yes. Lenders expect the deferred consideration to rank behind their debt under a formal agreement, and payments to the sellers can be stopped if the company breaches its loan covenants. Sellers should take their own advice on this.
Is an EOT better than a management buyout?
They suit different aims. An EOT rewards the whole workforce and can give the sellers tax relief, but they usually wait years for most of the money. A management buyout gives a small team ownership and often pays more on completion. Your advisers can compare the two.
Lender reviews
Lenders we compare for employee ownership trust finance
Independent write-ups of lenders on our panel that offer this type of finance. Smart Funding Solutions is a broker and is not part of any lender listed. See all lender reviews.
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