By Jeff Campbell — Senior Vice President, Scale Bank (Guest Blogger)

Selling your business to your employees by creating an employee stock ownership plan (ESOP) can be a meaningful way to exit your business and preserve your legacy and community presence. Establishing an ESOP, however, can be a complicated process, especially when it comes to financing the transaction. For a successful transaction—and for the long-term financial stability of your ESOP—you need a good banking partner to make it happen.

If you’re unfamiliar with ESOPs or their financing requirements, it can be hard to determine which bank is right for your situation. To help you assess a banker’s ESOP-related credentials, here are a few questions to ask when interviewing the bank.

What experience do you have working with ESOPs?

Working with an ESOP is not like working with other types of businesses. ESOPs have unique cash-flow requirements and must comply with certain accounting rules.

Your bank should be familiar with funding ESOP transactions as well as how to best meet an ESOP’s ongoing financing needs. Your banker should also understand what the transaction means for your company’s cash flow and financial statements due to ESOP-related accounting functions.

In the future, as the ESOP matures, your banker should be able to guide you through the repurchase liability of employee shares. Make sure your bank is knowledge of this process and has the flexibility to navigate it.

If your business is capital-intensive: Can you be a creative lender?

S-Corp ESOPs don’t pay taxes at the corporate level. This means cash flow that would have gone to the IRS can help to pay down debt or the seller more quickly. ESOPs that have equipment or capital-intensive businesses, however, don’t get the benefit of depreciation on assets because they don’t pay taxes.

If your business is capital-intensive, it’s important to make sure your bank can creatively structure financing for equipment and other needs based on your ESOP’s tax-advantaged status.

Are you familiar with cash-flow lending?

Cash-flow lending is lending outside of the collateral-based model; it’s based on an average multiplier of cash flow demonstrated by the company. Your bank should be experienced in this type of lending, as it can be a critical component of funding ESOP transactions.

How well-connected are you within the local ESOP community?

Establishing and servicing your ESOP requires more than an experienced banker; you need a team of trusted advisors such as attorneys, trustees, and accountants. Working with a bank that is tied in to your community’s network of ESOP service providers and resources can ensure you have the right expertise for your situation.

Confidently take the next step. 

As I mentioned, establishing an ESOP can feel overwhelming if you’re unfamiliar with its financing rules and requirements. If you’re unsure of where to start or would like to learn more about how financing works, we’re here to help.

Fidelity Bank has been active in the local ESOP environment for a number of years—we know the ins and outs of funding ESOP transactions as well as how to meet the ongoing banking needs of mature ESOPs. We’d be happy to answer any questions you have, so you can find peace of mind as you plan ahead.

You’re welcome to contact me (Jeff Campbell) anytime at or 952-830-7221.