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ESOP Association Blog

New U.S. Treasury Department Program

Ted Becker, Co-Head, ERISA Litigation Practice, McDermott Will & Emery
US Treasury Building

Allowing Loans and Technical Assistance for ESOP Buyouts of Retiring Business Owners

The U.S. Treasury Department has a new program making $10 billion in credit available to all fifty states, U.S. Territories, and Tribes for companies under 500 employees and loans up to $5 million in which ESOPs-in-formation and existing ESOPs can play a role.  The program is the State Small Business Credit Initiative (SSBCI) – it is not part of SBA.  The $10 billion in credit is being distributed to the Governors of all fifty states.  Each Governor has designated an economic development office in their state to administer the use of the credit.

This is currently the largest program in this Administration dealing with ESOPs.  The loans can be used as part of ESOP employee buyouts of business owners as long as the company is majority employee-owned at the end of the transaction.  The loans can also be used by existing ESOP companies for working capital, acquisition of equipment, paying for services used in production, manufacturing, delivery of goods and services, or the purchase/construction/renovation/tenant improvement of a place of business.  (The SSBCI program does not permit the funds to be used for passive real estate investments.)  

This SSBCI program is for all small business transactions up to $5 million and up to 500 employees, not just ESOPs and ESOP companies.  Whether ESOPs have a role in the program depends largely on whether professionals doing ESOPs bring potential ESOP deals to the attention of the state economic development officials administering the funds.  The names and email addresses of the officials in each state running this program can be found here.

If an ESOP professional needs more guidance to contact the specific person in their state, they can contact an outreach coordinator assigned by the Treasury Department for each state.  For the name of your state’s outreach coordinator, email

Here are some examples of ways a state using this credit can participate in an ESOP buyout deal up to $5 million per deal:

  • Through a loan guarantee that will help a small business obtain the loan by guaranteeing the local bank's loan;
  • Through participating in the ESOP buyout loan alongside a local private lender and sharing the risk;
  • Through portfolio insurance where the lender creates a loan loss reserve fund made up of premium payments by the lender and the borrower to make the ESOP buyout loan feasible;
  • Through a collateral support program where the state sets aside funds to be used for collateral for the loan to make the ESOP buyout loan feasible.

While ESOP buyout deals are allowed under this new program, the program involves many different types of deals, and no one type of deal is endorsed or favored by the Treasury Department.  The states that have already received their funding are:  Hawaii, Kansas, Maryland, Michigan, West Virginia, Arizona, Connecticut, Indiana, Maine, New Hampshire, Pennsylvania, South Carolina, South Dakota, and Vermont, North Carolina, Colorado, Oregon, New York, and Montana, California, Alaska, Idaho, Iowa, Massachusetts, Minnesota, Missouri, Nebraska, Nevada, New Mexico, Ohio, and Utah.

Treasury’s web site for the program with all the information available publicly is here.

The discussion of the ESOP element of the program can be found in the Capital Program Guidelines here.

The guidelines say that the credit cannot be used to purchase an ownership interest of any business owner with the exception of ESOPs in this language:

Each financial institution lender must obtain an assurance from the borrower affirming that the loan proceeds will not be used to:……Purchase any portion of the ownership interest of any owner of the business, except for the purchase of an interest in an employee stock ownership plan qualifying under section 401 of Internal Revenue Code, worker cooperative, employee ownership trust, or related vehicle, provided that the transaction results in broad-based employee ownership for employees in the business and the employee stock ownership plan or other employee-owned entity holds a majority interest (on a fully diluted basis) in the business.

Treasury is also accepting applications from the states, Territories, and Indian Tribes to disperse several hundred million in technical assistance funds that will also be administered by the states to support these transactions.

The Treasury Department sends out an email every Friday with updates on the program and information on weekly webinars on Zoom sharing ideas and best practices.   To be added to these future emails, please email your contact information including your name, title, and the name of your state to  This single email is also being used by Treasury to answer any technical questions on the use of the program that are not answered in the FAQs provided here.


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