Tucked into the omnibus National Defense Authorization Act signed by President Trump in August 2018 was language directing the U.S. Small Business Administration to help retiring owners sell their businesses to their employees, either as a worker cooperative or as an Employee Stock Ownership Plan.
The measure was backed by an array of nonprofit advocates of employee ownership, including the ESOP Association, the National Urban League, the American Sustainable Business Council, and the U.S. Federation of Worker Cooperatives. According to Melissa Hoover of the nonprofit Democracy at Work Institute, it is the first federal legislation ever to explicitly name worker cooperatives as an SBA priority.
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The new federal law directs the SBA to use its nationwide network of nearly 1,000 Small Business Development Centers to educate owners about selling to their employees. One obstacle, however, is that owners commonly want or need an immediate cash payment, which employees can rarely afford.
The law addresses that problem by authorizing the SBA to use its 7(a) loan guarantees for such buyouts. The SBA does not make the loans, but its guarantees mean that intermediaries such as banks are much more willing to make the loans. For 2018, Congress authorized the SBA to guarantee up to $28.5 billion for those loans.
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