Your partner wants out and the number is $150,000. What actually funds a buyout?

Four sources, in the order most deals use them. Cash from the business or the buyer. A bank or SBA-backed term loan, where the business has the returns and the cash flow to carry the new debt — SBA guidance treats certain ownership changes as an eligible use, with conditions on the business's debt-to-net-worth ratio and a down payment if the ratio is high. Seller financing, where the departing partner takes part of the price as a note paid over years, which is common precisely because it aligns the departing partner with the business surviving. And, for the rest, short-term money.

A valuation comes first. A partner leaving on a handshake number is a dispute waiting to happen; a valuation from an accountant who does them, based on earnings and comparable sales, is what a bank will lend against and what a partnership agreement usually requires anyway.

Three places. The down payment a bank or SBA lender asks for on the term loan, if the business's cash is not enough to cover it and the departing partner will not carry it. A small buyout — a minority partner at a price a few months of deposits can cover — where the cost of a bank process outweighs the cost of an advance. And a bridge: the partner wants to be paid by a date, the bank's closing is six weeks out, and a short advance closes the gap and is repaid at closing.

A working capital loan or advance funds in one to three business days at half to one and a half times a month's deposits. A business depositing $100,000 a month can raise a $50,000 down payment or a $50,000 bridge in one offer. It cannot sensibly raise $150,000 for the whole price, and the repayment on an amount that size, over months rather than years, would do to the business what the buyout was meant to avoid.

A $150,000 buyout on a seven-year bank loan is a monthly payment the business can usually carry from the departing partner's share of the profit. The same $150,000 on a twelve-month advance is a weekly debit several times that size, and it is priced as unsecured short-term money because it is. The fast route is right for the down payment and the bridge. For the principal, it is the most expensive way to do this, and the departing partner's note is very often the cheapest.

The partnership or operating agreement's buyout clause, the valuation, the signed buyout agreement or term sheet, and — for a bridge — the bank's commitment letter with its closing date. A funder reading a bridge to a dated bank closing is reading a two-month loan with a named repayment source. The same request without the commitment letter is an open-ended advance for an unexplained amount.