Your co-founder wants out. You have agreed a price, the lawyers have drafted the share purchase agreement, and the only thing missing is the money — the bank has said it will look at it, in about six months, once it has seen another set of accounts. Meanwhile the business needs a decision, not a process. This post is about shareholder buyout finance for UK owner-managed companies that need to complete in weeks: how a bespoke bridge is structured, what it costs, and how it compares with equity and a vendor loan note.
The scenario: a good business, an impatient deadline
The typical case is not a distressed one. It is a profitable trading company with two or three shareholders where one is leaving — retirement, a fallout, a move abroad, a divorce, a new venture. The departing shareholder wants cash on completion. The remaining founder does not have it personally and does not want to sell the company to raise it.
Banks can fund this, and if yours will do so on workable terms, take it. We are cheaper than equity but more expensive than a bank. The problem is usually timing rather than appetite: a high-street lender will want a full credit process, updated accounts, possibly a personal guarantee, and a term that starts after all of that. A departing shareholder rarely waits six months without renegotiating the price.
How shareholder buyout finance is structured as a bridge
A bridge here is a short-term secured loan to the company, or to a holding company set up for the purchase, that funds completion now and is repaid from a defined exit later. Three elements do the work.
Borrower and security
The borrower is the company, not you personally. Where the company buys back its own shares, the trading company borrows; where a new holding company acquires the shares, that holdco borrows and the trading company usually guarantees. Security is normally a debenture over the trading business and, where relevant, a charge over the shares being acquired. No warrants, no equity, and no personal guarantees as standard — that last point is often the deciding factor for a founder who has just been asked for one by a bank.
Term
Six to twelve months is usual. The term is set by the exit, not by a product sheet. If the exit is a bank refinance that needs the next set of audited accounts, the term runs to a couple of months past that date. If the exit is cash generated by the business, the term matches the forecast.
Exit
This is the part we spend most time on. A bridge is only sensible if the route to repaying it is credible on day one. The common exits for a buyout are:
- Refinance into term debt. Once the shareholding is settled and the accounts show the business trading normally, a bank or specialist term lender takes out the bridge over three to five years.
- Cash flow. A business generating strong free cash can repay in instalments over the term. This works for smaller facilities relative to EBITDA.
- Asset sale or property refinance. Where the company owns its premises, a longer-term commercial mortgage is often the cleanest exit.
Pricing for a clean deal is typically in the teens per annum, plus an arrangement fee. From first contact to drawdown is usually two to four weeks; the legal work on the share purchase itself often takes longer than the loan. You can read about how the facility works more generally on our bespoke bridge finance page.
A B2B services company turns over £4m with EBITDA of about £600k. A 30% shareholder is leaving and the agreed price is £750k. The bank has indicated it would lend after the next year-end, roughly seven months away. Finstock provides a £750k bridge to the company on a nine-month term, secured by a debenture and a charge over the purchased shares. At an illustrative 14% per annum the interest is around £8,750 a month, or roughly £79k over the full term, plus an arrangement fee. The company completes the buyout in three weeks. After year-end the bank refinances the bridge into a five-year term loan and the facility is repaid at month eight. The founder now owns 100% of the business and has not sold a share to fund it. All figures are rounded and illustrative.
Bridge, equity or vendor loan note: the comparison
There are two obvious alternatives to a bridge when buying out a business partner in the UK. Both can be right; neither is free.
| Bespoke bridge | Equity investor | Vendor loan note | |
|---|---|---|---|
| Who funds it | Lender | New shareholder | The departing shareholder |
| Cost | Interest in the teens per annum, for months | Permanent share of the company | Usually a coupon, plus a price premium and continued involvement |
| Speed | 2–4 weeks | Months | Fast, if the vendor agrees |
| Control | Founder keeps 100% | Founder dilutes, new board dynamics | Vendor stays a creditor, often with covenants |
| Risk | Exit must work | Valuation set under time pressure | Vendor can call default; relationship rarely improves |
Equity makes sense when the buyout coincides with a growth plan that needs capital anyway, and there is time to run a proper process. Selling shares just to fund a partner's exit, on a valuation negotiated in a hurry, is usually the most expensive option in the long run.
A vendor loan note — the leaver accepts part of the price over time — is often the first thing suggested. It can work where the parting is amicable. Where it is not, it keeps the departing shareholder inside the business as a creditor for years, and it is common for the vendor to demand a higher headline price in exchange. Many buyouts use a bridge for the cash element and a smaller loan note for the balance, which reduces the loan size and gives the vendor some skin in a clean handover.
If the company owns its premises, a property-backed structure may bring the cost down; we cover that in bridge loans secured on commercial property.
What a lender needs from you
MBO funding decisions move quickly when the file is complete. For a shareholder buyout we ask for:
- The heads of terms or draft share purchase agreement, showing price, completion date and any deferred element.
- Last two years' accounts and current management accounts, with a monthly cash-flow forecast covering the loan term.
- The exit plan in writing — a bank indication, a term-lender conversation, or the cash-flow case — and the date it becomes available.
- Group structure and cap table before and after completion, so we take security over the right entity.
- A note on the departure: why the shareholder is leaving, whether any customer or supplier relationships go with them, and any restrictive covenants.
- Confirmation of the company's legal position on buying back its own shares, if that is the route, from your solicitor.
Because decisions are made by the two of us rather than a credit committee, we can tell you within a couple of days whether the deal works and at what price. If it does not, we will say so, and usually why.
When a bridge is the wrong answer
Be clear-eyed about this. A bridge is short-term money with a firm end date. It is wrong if the exit is a hope rather than a plan, if the business cannot service the interest from trading, or if the buyout price relies on the departing shareholder's personal relationships to hold up. It is also wrong below about £100k, where our minimum does not fit, and it is wrong if a bank has already said yes on reasonable terms. In those cases shareholder buyout finance from a bridge lender is just an expensive way to avoid a conversation you need to have anyway.
If you have a price agreed and a completion date looming, send us the heads of terms and your latest accounts. One of us will tell you within days whether a bridge works and what it would cost.
Frequently asked questions
Who is the borrower in a shareholder buyout bridge?
The company, or a holding company set up to acquire the shares — not the founder personally. Where the trading company buys back its own shares it borrows directly; where a new holdco acquires them, the holdco borrows and the trading company usually guarantees. We lend to corporate borrowers only, and personal guarantees are not typically required.
How much does shareholder buyout finance cost from a bridge lender?
For a clean deal, pricing is typically in the teens per cent per annum, plus an arrangement fee. On a £750k facility that is in the region of £8,000 to £10,000 a month while it is outstanding. That is more than a bank and much less than giving away a permanent share of the business. If a bank will lend on workable terms in your timeframe, use the bank.
How quickly can a buyout bridge complete?
Two to four weeks from first contact to drawdown is usual. The loan is rarely the critical path; the share purchase agreement, any company buyback formalities and the legal due diligence on security usually take at least as long. Sending the heads of terms, accounts and a written exit plan on day one makes the biggest difference to speed.
What security does a lender take on a management buyout bridge loan?
Usually a debenture over the trading company, and where relevant a charge over the shares being acquired. If the company owns property, a charge over that can reduce the cost. We do not take warrants or equity as standard. The security package is set by the structure of the deal rather than a fixed template, which is why we ask for the group structure before and after completion.
Is a vendor loan note better than a bridge for buying out a business partner?
It depends on the relationship. A vendor loan note keeps the departing shareholder as a creditor for years, often with covenants and a higher headline price. Where the parting is amicable and the sums are modest that can be fine. Many buyouts combine the two: a bridge for the cash on completion and a smaller loan note for the balance, which lowers the facility size.