How Does a Leveraged ESOP Work?

Step 1:   The company borrows money from a third party lender (the “Outside Loan”)

Step 2:     The company loans the money to the Employee Stock Ownership Plan (the “ESOP”) and receives a note in exchange (the “Inside Loan”)

Step 3:   The ESOP uses the internal loan proceeds to purchase stock from the selling shareholder(s) in exchange for cash and/or a promissory note (the “Seller Note”)

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