ESOP financing

MB Financial Bank’s national ESOP Finance Group specializes in providing middle market business owners with strategic financing for an employee stock ownership plan (ESOP).

An ESOP is a qualified defined employee benefit plan in which a company creates a trust for the employees and allocates shares to eligible employees’ accounts, subject to vesting requirements. Participants normally receive the stock, or cash equal in value to the stock, after they leave the company or upon retirement.

MB Financial's experience

Our ESOP Finance team consists of seasoned commercial lending experts who understand current market dynamics and the complexities of an ESOP. Given MB Financial Bank’s history, we offer a unique perspective of the challenges and opportunities an ESOP provides.

We collaborate with an extensive network of ESOP community partners to develop financing solutions that are customized for the unique needs of each business. With broad lending experience across a variety of industries, MB Financial is a reliable financing source for ESOP transactions.

Advantages to business owner

ESOP financing offers several significant advantages to business owners. The benefits of an ESOP include:

  • Establishment of a succession plan
  • Tax benefits
  • Diversification of net worth
  • Increased liquidity
  • Employee compensation

Structures

 MB Financial offers a variety of ESOP structures, including:

  • Leveraged ESOP
  • Non Leveraged ESOP
  • Full and Partial Sale
  • Second Stage Transactions
  • Seller Note Refinance

ESOPs - the initial process

When an ESOP borrows money to buy company shares, it is called a Leveraged ESOP. The ESOP may own any percentage of the company’s shares and shares may come from the company and/or the selling shareholders.

MB Financial Bank provides Leveraged ESOP facilities (ESOP loans), typically structured as follows:

I. The Operating Company borrows funds from MB Financial Bank

II. At the same time, a “mirror/internal” loan is established between the ESOP Trust and the Operating Company.

III. The ESOP Trust then uses the funds to purchase stock from existing shareholders, the Company, or newly issued stock.

IV. The Operating Company makes annual, tax-deductible contributions to the ESOP Trust. The ESOP Trust then uses these contributions to makes its loan payments to the Operation Company (mirror/internal loan).

V. The Operating Company then uses the funds to repay the loan issued from MB Financial Bank.

 

Click here to view an illustration of the process.

 

 

Member: The ESOP Association and National Center for Employee Ownership (NCEO)

Get in touch

Email us at ESOP@mbfinancial.com, or contact:

Elizabeth Di Cola
Managing Director, ESOP Finance Group
1.847.653.7108
edicola@mbfinancial.com

ESOP Basics