When selling your A/E/LS firm through an employee buyout, understanding how banks and the SBA value your business is crucial to securing full payment at closing. The good news is that updated 2024 SBA lending programs and evolving bank underwriting standards now support sellers receiving near or full cash upfront, reducing reliance on seller financing or personal guarantees.
Firm valuation is based on tangible and intangible assets — including your backlog, work-in-progress (WIP), client contracts, and the strength of your leadership team. These factors, aligned with new SBA loan appetite and interest rate environments, shape buyer financing and your exit proceeds.
In this article, we demystify key valuation drivers, SBA loan mechanics, and how the Step-Up Legacy Plan™ offers a practical, bank-friendly way to achieve a legacy-preserving sellout over a 5 to 7 year timeframe.
With today’s SBA-backed financing, sellers can expect to receive near 100% cash at closing while empowering trusted employees to own.
Bank and SBA loan underwriters use a mix of financial, operational, and market factors to value A/E/LS firms for employee buyouts. The valuation directly impacts how much sellers will be paid at closing and whether employees can qualify for bank financing without seller notes or personal guarantees.
Key valuation drivers include:
Market Multiples and Interest Rates: In 2024-2025, A/E firms commonly receive EBITDA multiples around 4x to 5x or revenue multiples ranging from 0.75x to 1.0x, depending on geography and specialization. SBA 7(a) loans have seen rates between 10.25% and 15.25%, reflecting recent Federal Reserve hikes. Despite this, favorable SBA guarantee fee reductions and loan structure flexibility support competitive financing.
Seller Payment at Closing: Modern deal structures, especially the Step-Up Legacy Plan™, leverage SBA loan financing to provide sellers with close to 100% cash upfront. This eliminates lengthy seller notes or the “parent loan” trap, reducing risk and accelerating retirement funding.
Compared to alternative strategies like ESOPs—often burdened by $150,000+ setup costs and ongoing trustee fees—the Step-Up Plan offers a streamlined and cost-effective exit with fewer complexities, tailored for smaller A/E/LS firms.
Strong financials, transparent client contracts, and groomed leadership unlock lender confidence and maximum seller payouts in employee buyouts.
Implementing a bankable employee buyout requires careful preparation and timeline alignment. Here’s a straightforward 5 to 7 year roadmap focused on valuation and SBA financing:
By following this disciplined plan, sellers can avoid seller financing risk, receive near 100% cash at closing, and ensure the firm’s legacy remains intact under trusted employee ownership.
Additionally, evaluate complementary alternative financing options like private credit or mezzanine loans that banks increasingly accept alongside SBA loans to bridge equity gaps.
Ultimately, transparent preparation and early bank engagement are king. They enable employee buyers to qualify and free sellers from carryback exposure, ensuring a financially secure and smooth ownership transition.
A well-planned employee buyout aligned with how banks and the SBA value A/E/LS firms unlocks near 100% payment at closing, protecting your legacy and retirement.
Starting your 5 to 7 year succession roadmap today—focused on leadership grooming, transparent financials, and early lender partnerships—positions you for a smooth, bankable ownership transition.
Contact Allen Business Advisors to explore how the Step-Up Legacy Plan™ and current SBA financing can maximize your sale proceeds and preserve your firm’s culture.
