Sell Your Business to Your Employees
You already know who should run this place after you. The question is how they pay for it. Most of the time the answer is an SBA 7(a) loan in their name, and you get paid at closing. Here is how that works from your side of the table.
Why selling to an employee works
I have closed these from both ends: the employee who thought nobody would ever lend them the money, and the owner who wanted the business to keep going after them. When the buyer already works there, a few things go right that usually go wrong.
The business keeps running.
Your customers already know the person taking over. Your team keeps the same boss, or a boss they already work beside. Nobody has to be introduced to the vendors.
Diligence goes faster.
An outside buyer spends weeks learning what your employee already knows: which customers matter, what breaks in the summer, why that one supplier is worth the extra cost. The lender still checks everything, but there are fewer surprises to explain.
The lender likes the story.
Lenders weigh the buyer's experience running this kind of business heavily. An employee who has done the job for years is about as strong as that gets. You can read how it went for Janie, after 17 years at a pet care business, and for Derrick, who ran the crews for years before he bought the company.
You choose who carries your name.
You have watched this person work. That is worth more than any buyer profile a broker can send you.
How the SBA owner buyout works
Your employee is the borrower, not you. The SBA 7(a) loan pays you at closing, and your employee pays it back out of the business over the years that follow. Under SOP 50 10 8.1, an employee who has been in the business at least 24 months buying you out is an Owner Buyout.
| Employee 24 months or more | Employee under 24 months | |
|---|---|---|
| SBA category | Owner Buyout | Initial Acquisition |
| Down payment | 10%, lender may reduce or waive | 10%, cannot be reduced |
| Minimum debt service coverage | 1.25 to 1 | 1.25 to 1 |
| The seller after closing | May stay on | Consultant only, up to 24 months |
| Loan term | Up to 10 years | Up to 10 years |
Who signs. When owners or employees buy the shares, the business and the buyers are Co-Borrowers and sign the note jointly and severally. If the business instead redeems the departing owner's interest, the business is the Borrower and the remaining owners guarantee it under SBA's usual guaranty rules.
The 24 months is the line that matters most, so check it before you agree on anything else. Both cases are worked through with their SOP citations on our calculator pages: employee buyout, 24 months or more and employee buyout, under 24 months. Selling part of the business and keeping a stake is its own case too: a partial buyout.
What to expect as the seller
A seller note, possibly on full standby
Your employee has to put money in. Taking a $1,200,000 sale as the example: At least 10% of the purchase price in the purchase agreement (about $120,000 on $1,200,000). The lender may reduce or eliminate it if the borrower has enough liquidity and working capital to run the business after the transaction, and the balance sheet was not negative at the last fiscal year end. Cash that is not borrowed (including a gift) counts in full. A seller note or other debt on full standby (no principal or interest for the life of the SBA loan) and minority investors (under 20%, no control) can together cover no more than half.
In plain terms: if you carry part of the price so your employee needs less cash, the part that counts toward their down payment does not pay you anything until the SBA loan is gone. Some sellers are fine with that for a small slice of the price. Others would rather wait for a buyer with more cash. Either is a fair answer, and you should know which you are before you sign a letter of intent. How much a standby note saves the buyer.
A transition period
May stay on. The 24-month consultant limit applies to Initial Acquisitions and Business Expansions, not to an Owner Buyout, so the seller is not barred from staying on.
If your employee has been with you under 24 months and buys all of it, the rule changes: The seller cannot stay as an owner, officer, director or employee, but the business can hire them as a consultant for up to 24 months in total. Either way, write the handoff down. Who calls the big customers, who signs the checks the first month, when you stop coming in.
An independent valuation
Independent valuation required. An independent valuation by an accredited Qualified Source, prepared for the lender (not for the buyer or seller). If the price is above the valuation, the difference has to be made up with equity.
That is the number that decides the loan, so a price that is fair between you and your employee still has to hold up to it. Our free estimate gives you a range to start the conversation. It is not a substitute for the valuation.
A timeline you can plan around
A business acquisition is usually 60 to 90 days once the lender has a complete package. Most of the wait is underwriting, the valuation and the closing documents. The part you control is the front end: your tax returns, financials and lease are most of the file, and a package that arrives complete saves weeks. What drives the timeline.
Two free tools to get started
2 minutes
Estimate what your business is worth
A value range from your earnings and industry, your employee's rough monthly payment, and whether the business covers it the way a lender needs.
Get my estimate24 items
Get your package lender-ready
What a lender asks for on an employee buyout, split into what you provide and what your employee provides, plus a shared folder you can both upload to.
See the checklistQuestions owners ask
Can my employee use an SBA loan to buy my business?
Yes. When an employee who has been in the business for at least 24 months buys out the owner, SBA calls it an Owner Buyout. On a $1,200,000 sale, for example: At least 10% of the purchase price in the purchase agreement (about $120,000 on $1,200,000). The lender may reduce or eliminate it if the borrower has enough liquidity and working capital to run the business after the transaction, and the balance sheet was not negative at the last fiscal year end.
Do I have to carry a seller note?
No, but it can help your buyer. Cash that is not borrowed (including a gift) counts in full. A seller note or other debt on full standby (no principal or interest for the life of the SBA loan) and minority investors (under 20%, no control) can together cover no more than half. A note that counts toward the down payment has to sit on full standby, so you are not paid on it while the SBA loan is outstanding.
Can I stay on after I sell to my employee?
May stay on. The 24-month consultant limit applies to Initial Acquisitions and Business Expansions, not to an Owner Buyout, so the seller is not barred from staying on. If your employee has been with you less than 24 months and buys the whole business, it is an Initial Acquisition instead: consultant only, up to 24 months.
Does the business need an appraisal?
Independent valuation required. An independent valuation by an accredited Qualified Source, prepared for the lender (not for the buyer or seller). If the price is above the valuation, the difference has to be made up with equity.
How long does an employee buyout take to close?
A business acquisition is usually 60 to 90 days from a complete application, and most of that is the lender's underwriting, the valuation and the closing documents. The part you control is how fast the package comes together.
SBA rules from SOP 50 10 8.1 (effective October 1, 2026), Appendix 15. Lenders can ask for more. General information, not a loan approval, legal or tax advice. Talk to your CPA about how the sale is taxed before you agree on a structure.