Companies typically consider introducing an employee ownership plan for one of two reasons: to facilitate a succession plan or to enhance their  talent strategy. The good news is that regardless of why a company pursues employee ownership, there are a broad range of financing tools available that serve the same goal—to accelerate the transition to employee ownership in a way that’s accessible for all employees. 

At the 2025 Canadian Employee Ownership Conference in Calgary, I moderated a panel of three BMO experts who explained the various financing options for transitioning to employee ownership: 

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  Devon Sailer, Director, Corporate Finance, BMO Commercial Bank 

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  Hanz Gin, Managing Director, BMO Capital Partners 

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  Denis O’Dwyer, Director, Assistant Market Lead, BMO Private Wealth. 

Below is a summary of our conversation. 

Term loans are widely regarded as the most common and affordable financing solution. As Sailer pointed out, businesses with strong management teams and demonstrably stable cash flow (both historically and on a go-forward basis) can often secure more favorable terms, such as higher loan amounts or longer amortization periods of up to 10 years.  

“We sit down with business owners and their teams to gain a deep understanding of their business and its financial health,” Sailer said. “We’re going to look at maintainable EBITDA [earnings before interest, taxes, depreciation and amortization], and we’re going to look at the maintainable free cash flow of the business.” 

When business owners are looking for liquidity above and beyond what is provided by a term loan, mezzanine financing comes into play. As Gin explained, mezzanine financing is a hybrid instrument that bridges the gap between senior debt and equity. 

“Often times it’s used for transformative events in a company’s life cycle,” Gin said.  

Mezzanine financing tends to function as more patient capital than senior lending. “Often, lenders are not looking for principal repayment,” Gin said. “They’re looking for it to help the business owner grow and, after a few years’ time, repay it in one shot.” 

It also offers more flexibility than term loans. Interest can be structured as cash or capitalized interest payments, for example. “It’s really a bespoke offering depending on the business owner’s needs,” Gin said. 

Some companies may choose to take on an investor to finance their employee ownership transition. Companies considering equity financing should focus on two elements: whether the investor is looking to hold a majority or minority stake, and how long they intend to hold their investment.  

While private equity firms or strategic investors are typically associated with equity financing, Gin said minority investors with long time horizons—such as family offices—are often a better fit for employee-owned businesses. 

“These are investment arms of wealthy families that have had a liquidity event along the way,” Gin said. “They’re focused on legacy, they’re focused on stability, and they tend to be a lot better aligned with employee-owned businesses.” 

The previous options highlight financing structures that show up on a company’s balance sheet, but that isn’t the only way to execute a transition to employee ownership. Through a direct employee purchase, employees can use their own money—or take out a personal loan—to purchase shares in the company.  

As O’Dwyer explained, certain personal loans can be secured by the company. Under this approach the loan is supported by the business, but the liability falls on the individual employee. And because the loan is made to the individual, that debt doesn’t appear on the company’s balance sheet. This type of financing comes with its own set of considerations, particularly for the employees. 

“If you're an employee interested in buying into your company, you want to make sure that you understand what the business is and how it functions,” O’Dwyer said. “Make sure you’ve looked at the financials, maybe have an adviser who knows about the financial side of things review it. Because you have to think of this as an investment. You want to ensure that you understand the risks, understand what you’re looking for in the long term, and that it meets your risk tolerance." 

Financing a transition to employee ownership is not an off-the-shelf solution. Depending on the business owner’s needs, each of the options discussed here can be tailored to secure the best financing terms and to provide the best solution for their employees.   

“I would encourage business owners to start developing relationships with potential lenders early on—before you need the financing,” Gin said. “This allows the lender or investor to get to know the story. From the business owner’s perspective, you get to establish credibility, you get to control the narrative and be the advocate for your business. So, by the time you do go to market, there’s already a solid understanding of the business.” 

Whether you’re a business owner considering succession or an executive looking to create a talent advantage, an employee ownership solution may help you achieve your business goals. Reach out to our team to learn about your options.