Buyers can use various financing strategies and options individually or in combination to tailor payment methods and terms, or to minimize interest, commitment fees or other debt-related encumbrances. Some of the most innovative financing approaches are being provided by sources other than commercial banks. These lenders include finance companies, insurance companies, pension funds, mortgage bankers and venture capitalists. A maximum amount is established that cannot be exceeded without renegotiating the loan agreement. A pool of professionally managed funds that invest in smaller, high-growth, privately held companies, this type of financing focuses on quality of management and established tract record as financing criteria.
Investors require equity position in the company.
Sometimes used to leverage a management buyout of a company, an ESOP is set up to allow employees to purchase the stock of a business. Both the principal and the interest are deductible. The lender, such as a commercial bank, provides funds adequate to purchase the stock of the targeted business. The acquiring company guarantees the loan and makes annual contributions to the ESOP until the loan is amortized. Complex regulatory aspects usually require professional administration.