How to Finance a Restaurant Partner Buyout
Restaurants are frequently started by partners with complementary skills: a chef and an operator, a front-of-house professional and an investor, two friends who worked together for years, or family members. Over time, goals change. One partner wants to retire, relocate, pursue another concept or simply step away. Sometimes the partnership has become strained. A restaurant partner buyout allows the remaining owner to keep the restaurant running while the departing partner is paid fairly for their share.
This guide explains how restaurant partner buyouts are typically valued, structured and financed, and the restaurant-specific issues that come up along the way. It is general information; each partner should have separate legal and tax advice.
What Makes Restaurant Buyouts Distinctive
- Roles are often operational. If the departing partner is the chef, general manager or public face of the restaurant, the buyout is also a leadership change.
- The lease and guarantees. Both partners may have personally guaranteed the lease, and the departing partner will want to be released.
- Licenses. Changes in ownership may require notice to or approval from licensing authorities, especially for liquor licenses.
- Cash flow is the main source of repayment. Restaurant buyouts are usually paid for out of the restaurant’s future cash flow, so the structure must leave enough for operations.
- Emotions run high. Many restaurant partnerships are personal. Clear processes help keep the business stable during the separation.
Start With the Partnership Agreement
Review the operating agreement, shareholder agreement or partnership agreement for buy-sell provisions. They may address:
- events that trigger a buyout, such as retirement, disability, death, departure or deadlock
- how the price is determined, such as a formula, an agreed value or an independent appraisal
- payment terms and timing
- life or disability insurance intended to fund a buyout
- restrictions on selling to outsiders and rights of first refusal
- non-compete provisions for a departing partner
If there is no agreement, or it is silent on the key issues, the partners will need to negotiate these terms. The lease, licenses and any loan documents should also be reviewed for provisions affecting ownership changes.
Valuing the Departing Partner’s Share
Value usually reflects the restaurant’s documented earnings, the security of its lease, equipment condition and the degree to which results depend on either partner. If the departing partner is central to the restaurant’s appeal, the value of the business after their departure may differ from its value today, which can complicate negotiations. An independent valuation gives both sides a neutral starting point. See our guide to restaurant valuation.
If the partners also co-own the building through a separate company, the real estate interest is usually valued separately by a commercial appraiser.
Common Buyout Structures
Purchase by the remaining partner. The remaining partner personally buys the departing partner’s interest, often with financing.
Redemption by the company. The restaurant company buys back the departing partner’s interest, concentrating the obligation in the business.
Staged buyout. The departing partner is paid over time, with ownership transferring in stages. This reduces the upfront cash required but keeps the departing partner involved financially.
Bringing in a new partner. A new investor or operator buys the departing partner’s interest, sometimes combined with financing.
The right structure depends on taxes, financing availability and the relationship between the partners. Advisors should help evaluate each option.
Financing Options
Business acquisition financing. Lenders can finance the purchase of a partner’s interest based on the restaurant’s historical cash flow, subject to underwriting. Lenders will want to see that the restaurant can support the new debt along with its existing obligations.
SBA financing. SBA 7(a) loans can be used for changes of ownership, including certain partial buyouts, subject to program rules. See SBA loans for restaurants.
Seller financing from the departing partner. The departing partner receives part of the price over time through a note. This is common and can reduce the cash needed at closing. See restaurant seller financing.
Combining with refinancing. If the restaurant carries existing debt, restructuring it alongside the buyout can create a single, more manageable payment. See our restaurant debt refinancing page.
Real estate financing. If the remaining partner buys the departing partner’s share of the building, that can be financed separately with longer-term real estate financing.
Insurance proceeds. Where partners planned ahead with buy-sell insurance, proceeds may fund a buyout upon death or disability.
Owners can estimate payments using our SBA loan calculator.
What Lenders Look For
- documented cash flow sufficient to support the buyout debt and operations
- a clear management plan after the departing partner leaves, especially if they held a key role
- a lease term that supports the loan, and landlord consent where required
- signed agreements between the partners on price and terms
- the remaining owner’s experience, credit and financial position
- working capital remaining after the transaction
Replacing a Departing Chef or Operator
If the departing partner runs the kitchen or the dining room, the remaining owner needs a credible plan. Options include promoting a sous chef or assistant manager, hiring an experienced replacement before the partner leaves, or negotiating a transition period in which the departing partner trains a successor. Documenting recipes, procedures and supplier relationships reduces disruption. Lenders and landlords will be more comfortable when leadership after the buyout is clear.
Releasing Guarantees
Departing partners typically want to be released from personal guarantees on the lease, loans and supplier accounts. Landlords and lenders are not required to release them and often want a replacement guarantee from the remaining owner. Discuss this with each creditor before closing.
Keeping the Restaurant Stable During the Separation
Staff and regular customers notice tension between owners. Agree early on who makes day-to-day decisions, how communications with staff will be handled, and how major expenses will be approved until closing. A buyout that closes on schedule but leaves the restaurant weakened helps no one.
Steps to Complete a Restaurant Partner Buyout
- Review the partnership agreement, lease, licenses and loan documents with separate counsel for each partner.
- Obtain an independent valuation of the restaurant and, if applicable, the real estate.
- Agree on price, payment terms, the departing partner’s transition role and any non-compete.
- Meet with lenders early to test financing and understand documentation requirements.
- Contact the landlord about consent and guarantee changes.
- Confirm license notice or approval requirements for the ownership change.
- Close the financing, update ownership records and notify suppliers, staff and other stakeholders.
Frequently Asked Questions
Can I get a loan to buy out my restaurant partner?
Often, yes, if the restaurant’s documented cash flow can support the new debt and the post-buyout management plan is sound.
How is a restaurant partner’s share valued?
Usually based on the restaurant’s documented earnings, lease position and assets, often with an independent valuation. The partnership agreement may specify a method.
Will my partner be released from the lease guarantee?
Only if the landlord agrees, often in exchange for a guarantee from the remaining owner.
Financing a Restaurant Ownership Change
US Professional Funding helps restaurant owners finance partner buyouts through acquisition financing, SBA and conventional loans, real estate financing and refinancing. You can also read our guide to restaurant succession planning.
