Employee Stock Ownership Plans continue to gain traction across the country, and recent developments suggest the future of employee ownership is brighter than ever.
In Episode 23 of ESOP Radio, Trevor Gilmore and Ben Spadt shared updates from Washington, D.C., discussed proposed legislation that could expand ESOP adoption, and reviewed trends they’re seeing in today’s lending environment.
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Video Transcript
Chapter 1: What Trevor and Ben Have Been Working On
4 seconds
Hi everyone, welcome to ESOP Radio.6 seconds
There’s positive news for the industry coming out of DC, Rutgers University released a study proving that Esop companies13 seconds
increase productivity by 6-7% and were busy helping business owners navigate their strategic options.20 seconds
I’m Trevor Gilmore, CEO of Menke And I’m Ben Spadt.27 seconds
So, Ben, to kick things off, what you’ve been up to lately. Yeah, out and about in the world.31 seconds
I, just got back from DC where we were advocating for Esops, and I have actually closed a deal where a company sold 49% to an Esop.42 seconds
Nice.43 seconds
And then behind the scenes, I’ve been, working on our repurchase obligation software modeling, which we call our success score.51 seconds
And, trying to make that better, more effective, as a better decision making tool. Trevor, what have you been up to? Yeah.59 seconds
So, Ben, I’m still climbing down from the high of running the Boston Marathon last month. That was an awesome experience.1 minute, 5 seconds
Excited for the upcoming Chicago Marathon in October.1 minute, 8 seconds
So I need to start the new training cycle here. Coming up in, by early July. Yeah. I went to a few car events here, and. So.1 minute, 16 seconds
Calendar, you and I are both car buffs. Absolutely.1 minute, 20 seconds
Oh, it’s cool to see all the awesome stuff out there.1 minute, 22 seconds
A lot of Porsches and so on went to air water specifically for any car buffs listening and also workwise1 minute, 30 seconds
then raising a lot of money for several clients.1 minute, 33 seconds
And that’s giving me Intel on the current lending environment out there for Esops. So, Ben, you’re fresh out of DC. What did you do? What happened there?1 minute, 40 seconds
What are the key takeaways here for our listeners? Yeah.Chapter 2: ESOP Advocacy in Washington, DC
1 minute, 43 seconds
Well, personally, the first two days of the conference in DC was advocating for Esops, like I said a little bit earlier.1 minute, 50 seconds
And what we did was we went to both the House of Representatives and the Senate and talked to our congresspeople about what1 minute, 58 seconds
bills are currently out there on the floor.Chapter 3: Proposed ESOP Legislation Explained
2 minutes
One is for contribution limits and things like that as it pertains to Esops.2 minutes, 5 seconds
Another is having government backed loan to help fund these transactions. Let’s think about that actually.2 minutes, 12 seconds
So government backed loans, are we talking about like a mortgage?2 minutes, 16 seconds
You know, the government backs certain mortgages and it’s a 30 year, you know, basically to make homeownership affordable.2 minutes, 24 seconds
Right.2 minutes, 24 seconds
Similar concept here is, hey, I’d do a government backed loan possible it is a longer term. Yeah.2 minutes, 31 seconds
The, essentially it’s sort of if you want to think about like the SBA where you could get a traditional business loan, but rather than having assets2 minutes, 39 seconds
to back it or a personal guarantee, the government says, you know, we will step in and guarantee this loan.2 minutes, 46 seconds
So it’s typical to, a government like an FHA loan or something like that, or USDA loan,2 minutes, 53 seconds
but it’s more business related is there’s no increased costs outside of the administrative costs to taxpayers.3 minutes, 1 second
And it just further incentivizes lenders, like you said, to lend to these types of transactions and lend more money.3 minutes, 11 seconds
You know, right now we’re seeing, you know, 100% transaction will lend some of it.3 minutes, 15 seconds
Perhaps we can get to a point someday where they’re lending the entire amount. Yeah. Okay. Well, that’s definitely promising.3 minutes, 21 seconds
And I would the government basically be guaranteeing loans right now.3 minutes, 24 seconds
You know, the traditional banks out there lending SOPs are basically that same pathway remains the same in terms of who’s making the loan.3 minutes, 30 seconds
It’s just, hey, the government will come and guarantee and possibly go higher than the traditional 2 to 3 times EBITDA that we see out there on a senior basis.3 minutes, 38 seconds
Absolutely right.3 minutes, 40 seconds
And so those are a couple examples of what’s currently proposed is legislation.3 minutes, 45 seconds
And one of them was up for a floor vote in the House.3 minutes, 47 seconds
And so you know, we’re they’re saying, hey, this is coming up for a floor vote.3 minutes, 50 seconds
Please either vote yay or, you know, speak about it, learn more about it, that sort of thing.3 minutes, 55 seconds
So there was a good number of individuals there representing all states.4 minutes, 1 second
There was a couple from some territories that were it was interesting to see.4 minutes, 6 seconds
And then the, the back half of the week was more of a traditional conference for a lot of continuing education, but because of the unique nature of it4 minutes, 15 seconds
being in DC, we had some representatives from our government come and talk, and one is a newly appointed, undersecretary UnderChapter 4: Department of Labor’s New ESOP Outlook
4 minutes, 24 seconds
Secretary Daniel Aronowitz, who basically came out and said, you know, Esops are no longer in the crosshairs.4 minutes, 32 seconds
We’re very pro Esop.4 minutes, 33 seconds
We want to expand employee ownership, really soothing a lot of the concerns that we once had about the these types of deals and setups4 minutes, 41 seconds
being under more scrutiny from the government and from Orissa, and now they’re looked upon more favorably. That’s great.4 minutes, 49 seconds
Did he give any insights there on what’s changed, you know, in terms of the appetite, you know, in terms of the Esop oversight, governance,4 minutes, 57 seconds
so on, I know valuation is a big part of it.5 minutes
Also following a procedure is, you know, documenting the process you receive.5 minutes, 4 seconds
For those listening, RSA is basically the governing body that oversees retirement plans, is created in 1974.5 minutes, 12 seconds
And, it’s a very much a procedural driven agency.5 minutes, 16 seconds
So do you talk much about that in terms of procedures, etc., you know, especially as it relates to evaluation? Yeah.Chapter 5: Adequate Consideration & Trustee Oversight
5 minutes, 23 seconds
And is the, I guess the teeth behind RSA, it’s the, enforcement side of things since what he talks about was,5 minutes, 31 seconds
you’re right, the adequate consideration, making sure that these esops are being sold, bought and sold at fair market value.5 minutes, 38 seconds
And that was another thing we talked about with our legislators, too, was defining what that means more tightly, defining what that means as opposed to having it being open to interpretation.5 minutes, 47 seconds
And so he said that, you know, there are efforts in place to put some sort of guidelines in place as to what adequate consideration is.5 minutes, 57 seconds
Another one was a lot of, you know, faith and a lot of a lot of the lawsuits will just say fall upon the trustee, you know, for6 minutes, 5 seconds
not acting on behalf of the benefit of all the shareholders in the Esop.6 minutes, 10 seconds
And for what, one reason or another, that was one that was in the crosshairs with so was targeting these trustees6 minutes, 17 seconds
and really being aggressive at making sure that they’re doing the right thing. And and that has lessened.6 minutes, 24 seconds
There’s a lot more trust put in the trustee. That’s their name. That’s exactly right. Yeah.6 minutes, 29 seconds
And then on the flip side, our participant lawsuits as well, these plaintiff lawsuits that are suing the trustees or suing the Esop for,6 minutes, 38 seconds
you know, not managing their funds correctly, and a lot more trust is being put on the on the shoulders of the trustee.6 minutes, 46 seconds
Obviously, they’re insured to the gills.6 minutes, 47 seconds
But there are you know, that is their job. That’s what they’re there for. And hiring a good trustee is important.6 minutes, 53 seconds
And then as far as those plaintiff lawsuits are concerned, I guess we’re sort of not flying it all the way up the flagpole,7 minutes, 2 seconds
making sure those are vetted, making sure they’re not frivolous things like that before they advance in the courts.7 minutes, 7 seconds
And so, you know, it’s a multi-pronged approach.7 minutes, 11 seconds
But at the same time, the the bottom line is esops are looked upon more favorably.7 minutes, 17 seconds
And so I think that’s the major takeaway from DC is that we are trying.7 minutes, 22 seconds
Oh, it’s been 52 years, and we’re still defining what adequate consideration is for the for these esops.7 minutes, 28 seconds
And so hopefully we’re getting to a point where we have, you know, if anything ever gets called into question, you can say, well, I followed the,7 minutes, 35 seconds
the steps outlined in, in the code, whereas now there’s a lot of interpretation. Absolutely.Chapter 6: Why Hiring the Right ESOP Team Matters
7 minutes, 40 seconds
And this really is your return on the importance of hiring the right team.7 minutes, 46 seconds
To execute any such transaction, having an arm’s length negotiation. Very true.7 minutes, 51 seconds
And it’s you know it’s like building a house.7 minutes, 53 seconds
You could be the GC the general contractor, do it all yourself.7 minutes, 57 seconds
But hiring somebody like yourself or me to quarterback that deal be the GC. We know the players that are out there.8 minutes, 5 seconds
You know a lot of these banks.8 minutes, 6 seconds
You know you’re raising money for these esops that otherwise they wouldn’t know existed or knew that banks could be this favorable in lending. We know.8 minutes, 14 seconds
And do we know a lot of trustees, every player in this space and and valuation companies.8 minutes, 19 seconds
So it is good to effectively hire a good GC to make sure the deal is successful.8 minutes, 24 seconds
And at the end of the day, and Esop is a broad based benefit plan for the employees to last into perpetuity.8 minutes, 31 seconds
And that’s what we want to create a long term sustainable plan that benefits all employees. That’s that’s fantastic.8 minutes, 38 seconds
So yeah, great news overall.8 minutes, 40 seconds
Sounds like your trip to DC was productive.8 minutes, 42 seconds
You do anything fun out there you know as you get out? I didn’t have time. I didn’t have time.Chapter 7: Real-World 49% ESOP Success Story
8 minutes, 47 seconds
So I came to DC straight from Washington State, where I worked with a well drilling, water well drilling and pumping company to sell 49% to the employees.8 minutes, 57 seconds
And so we shook hands, took pictures, all that sort of thing celebrated in order to, you know,9 minutes, 5 seconds
help solidify that we are keeping jobs local. We are keeping businesses local.9 minutes, 10 seconds
We’re generating wealth with these employees.9 minutes, 13 seconds
One anecdote this is actually from DC, but I talked with an employee of an Esop in Iowa who had worked there for five years,9 minutes, 21 seconds
and she said her Esop account was three times that of a 401 K at a previous employer where she had worked for ten years.9 minutes, 28 seconds
And so these are dramatic, dramatic shifts in, you know, retirement, wealth. We can create just from your hard work.9 minutes, 36 seconds
Blood, sweat and tears going into your job creates this, real benefit.9 minutes, 41 seconds
And, you know, we’re out there hopefully helping the rank and file.9 minutes, 44 seconds
And so in north of Spokane, there was, 65 employee owners now that have skin in the game. And it was huge.9 minutes, 52 seconds
There were smiles across the room about how they felt like, you know, now we are a part of this together and we’re creating a brighter future together.10 minutes
And and only selling 49%.10 minutes, 2 seconds
The owners were able to still maintain control, still run the business the way it was run the day before.10 minutes, 8 seconds
Now have a, you know, 65 employee owners and that’s awesome.10 minutes, 14 seconds
And also them the founders there too, they got a liquidity path there.10 minutes, 18 seconds
So they’re able to get some cash out for their 49% stake money.10 minutes, 23 seconds
And we created a diversified if all your retirement, all your wealth is tied up in your business, which for so many of these founders,10 minutes, 30 seconds
it is it’s a great way to get chips off the table to diversify, to help start that succession plan or continue whatever succession plan you had in place.10 minutes, 39 seconds
Now, Trevor, I’ve been talking way too much on this early going, but you’ve been raising a lot of money for these deals that we’re doing these transactions.10 minutes, 46 seconds
What trends are you seeing in in the banking and finance space.Chapter 8: Current ESOP Lending Environment
10 minutes, 50 seconds
Yeah. So overall most banks are all in on Esop lending.10 minutes, 54 seconds
So I’ve noticed a huge shift past couple of years.10 minutes, 57 seconds
A lot of the regional banks out there, even the large nationwide banks have sophisticated Esop teams.11 minutes, 5 seconds
And they’re all in on Esop one.11 minutes, 6 seconds
And so seen very competitive terms out there and just overall hunger to lend money.11 minutes, 11 seconds
So that is bright news for the owners of companies looking at the Esop option and saying, hey, how do I get some cash out.11 minutes, 19 seconds
You know, not actually finance this whole thing on my own, which that traditionally has been one of the the key ways Esop deals are financed.11 minutes, 26 seconds
So as far as terms go or see interest rates very competitive think, you know, so for a little over one to two and a half11 minutes, 34 seconds
depending on the company size, their balance sheet and so on.11 minutes, 37 seconds
So let’s translate that to interest rates.11 minutes, 39 seconds
That basically means somewhere between 5 and 6 is right now. And again prime right now 6.75%.11 minutes, 45 seconds
And we’re talking about senior loans for Esop transactions that are well below prime. Right.11 minutes, 51 seconds
And that’s a typical to what has happened in the past. And in the very recent past.11 minutes, 56 seconds
People have been sort of shy or a little hesitant to lend at all, let alone at a rate that is that favorable. Yeah, exactly.12 minutes, 4 seconds
And also, we’re seeing Esop friendly covenants out there too, you know, in terms of the cash flow metrics, you know, making sure that the bank understands what the Esop is,12 minutes, 12 seconds
there’s a big noncash component to it, you know, as you know and I know, but this is getting in the weeds.12 minutes, 16 seconds
Yeah, I mean, in the beginning especially you know that Esop internal loan.12 minutes, 19 seconds
So being able to look at the actual real cash flows of the company and make the decision based on that. So we’re seeing that.12 minutes, 26 seconds
So it’s been a very positive shift overall. You know I’m promising too.12 minutes, 31 seconds
So it’s been fun too because showing these options, finding the right long term partner is going to grow with their clients later in this process.12 minutes, 40 seconds
It’s been fun.12 minutes, 41 seconds
Have you seen it specific to one particular industry or multiple. Yeah. So across all industries no.Chapter 9: Industries Seeing Strong ESOP Financing
12 minutes, 48 seconds
We do a lot in the AEC architecture, engineering, construction. We do a lot in math.12 minutes, 52 seconds
And then on top of that we work with media companies. We work with manufacturers.12 minutes, 56 seconds
So one of our clients had a cool manufacturer, awesome business, a base in California.13 minutes, 1 second
I’ve been in business 35 plus years and very innovative, very clean balance sheet.13 minutes, 5 seconds
You know, we see that with companies like the Esop.13 minutes, 8 seconds
You know, typically they’re operated very conservatively, not much that reinvest in the business, reinvest in growth, reinvest in the people.13 minutes, 16 seconds
And then that tends to mean, hey, that’s going to be a good company to go Esop.13 minutes, 22 seconds
And then on top of that positive signs for great. And they have terms as well.13 minutes, 26 seconds
You know this that’s a mainstream client you know have that sort of factor there. Absolutely. Absolutely. Yeah.13 minutes, 33 seconds
You know when you start with a good work product like that good financial statements healthy balance sheet, it makes everybody’s job a little bit13 minutes, 41 seconds
easier, makes ours when it comes to install, designing and installing the Esop.13 minutes, 45 seconds
It makes our job easier, makes the banks easier, the credit underwriters and what you know, they know what they’re looking at.13 minutes, 51 seconds
They feel confident that they’re lending into a good opportunity.13 minutes, 54 seconds
You know, I say often more so than the numbers themselves, a well-run company is just as important or more important in order to have a successful Esop.14 minutes, 3 seconds
And this is, you know, in a successful a lending scenario to. Absolutely.Chapter 10: Why Banks Are Investing in ESOP Expertise
14 minutes, 7 seconds
And another trend to been out there on the banking front is more and more regional lenders.14 minutes, 13 seconds
And the large as we talked about, are actually recruiting Esop talent, you know, to be part of their banking.14 minutes, 20 seconds
And that’s huge because these companies realize that these are companies I should say these banks realize good Esop companies are going to be awesome bacon clients stable cash flows.14 minutes, 29 seconds
Yeah, right. Because staying independent, you’re absolutely right. You’re not just going to get that Esop loan.14 minutes, 37 seconds
But there may be a line of credit.14 minutes, 39 seconds
There may be other products that they have that and can help build their the bank’s portfolio with that one client.14 minutes, 47 seconds
And you hit the nail on the head.14 minutes, 49 seconds
You know, a lot of these regional banks, they lacked the understanding that knowledge of what an Esop is and how an Esop works.14 minutes, 56 seconds
So they are going out and they’re hiring those with experience to help shore up those deficiencies.15 minutes, 1 second
So that they can feel confident lending in these situations.15 minutes, 4 seconds
And you’re right, we are seeing more and more in that.15 minutes, 6 seconds
You see LinkedIn all the time, this person’s change from this bank to the other because of that Esop experience. Yeah, that’s that’s never ending.15 minutes, 13 seconds
But yeah, we’re we’re seeing also that Esop companies default on their loans a lot less.Chapter 11: Why ESOP Companies Are Attractive Borrowers
15 minutes, 19 seconds
I was speaking with a banker and private equity firm or PE backed firm.15 minutes, 24 seconds
You know, in essence they did a huge dividend.15 minutes, 26 seconds
Yeah, I pulled a bunch of money on and defaulted right away. So that’s pretty good.15 minutes, 30 seconds
You know, you don’t necessarily see that with these companies.15 minutes, 32 seconds
You know, this is very much the long term, long term cash flows.15 minutes, 35 seconds
How do we make this thing sustainable for the long run.15 minutes, 38 seconds
And then another anecdote to, one of our clients, we were raising capital for, their existing bank, small regional bank.15 minutes, 46 seconds
They literally got on the phone with us, you know, said, I don’t think you should do this. I don’t do it. It’s like, well, guess what?15 minutes, 51 seconds
They lost a client, you know, because one of the banks, you know, Esops. And this was an awesome prospect. Solid balance sheet, solid growth.15 minutes, 58 seconds
You know, you look at the metrics, you know, that the bankers all care about in this company. Pass them all with flying colors.16 minutes, 4 seconds
You know, they’re bankable client all day long. So you know that sort of posture.16 minutes, 7 seconds
They ask the client, well, yeah for sure.16 minutes, 11 seconds
And it’s it’s exciting to see that because, you know, in the past, that wasn’t always the case.16 minutes, 15 seconds
You know, now we’re seeing many more banks out there interested in esops all in on esops, even at the top CEOs of these large banks to now understand what esops are.16 minutes, 25 seconds
That was both surprising and refreshing to hear.16 minutes, 28 seconds
But you you said something important to about these ratios that that banks concerned themselves with.16 minutes, 34 seconds
And I just wanted to say that as part of our Esop fit analysis, where we’re looking to see if, you know, is your company a good candidate for an Esop,16 minutes, 42 seconds
we look at those as well so that we can talk the talk when it comes time to, interview these banks and make sure that we’re getting competitive terms.16 minutes, 50 seconds
We want to know the company shoulder this, this debt and how easily.16 minutes, 54 seconds
And then when we know we take that to the banks and say, hey, we’ve got a great prospect here.16 minutes, 59 seconds
Here’s all the metrics that you would be concerned with. And then they’re easy to jump right in.17 minutes, 4 seconds
And, you know, you might have a term sheet in a week as opposed to if we have to figure that out on the fly, it takes a lot longer. And sometimes the terms are worse.17 minutes, 12 seconds
So, you know, I think we offer a great a value add there to, to help bridge that gap something.17 minutes, 19 seconds
Yeah. And you know, our role is to find the best banking partner for our clients. Right.17 minutes, 22 seconds
And knowing them inside and out, knowing the the financial ratios, the fundamentals everything. But yeah.Chapter 12: Closing Thoughts
17 minutes, 29 seconds
Hey then that was awesome discussion today. Thanks to everyone for joining us. That’s it for today. Stay tuned. We have new episodes coming out.17 minutes, 36 seconds
We love talking about ISAs, valuation, finance.17 minutes, 39 seconds
Follow us on your favorite podcast channel, whether that’s Spotify, Apple, YouTube or even check out our website. Menke.com and Trevor Gilmore.17 minutes, 47 seconds
You can reach out to me on LinkedIn under my name. Same thing with Ben Spadt. Have an awesome day everyone. Take care. Take care. But what?Advocacy Efforts Continue in Washington
Ben recently attended meetings on Capitol Hill where ESOP advocates met with members of both the House and Senate to discuss legislation designed to support employee ownership. Proposed measures include increased flexibility around ESOP contribution limits and government-backed loan programs that could improve access to financing for employee ownership transactions.
One proposal would function similarly to SBA loan guarantees by encouraging lenders to participate in ESOP transactions while reducing perceived risk. Such programs could potentially increase available financing and improve transaction flexibility for business owners considering employee ownership.
A More Favorable Regulatory Environment
Another significant development came from comments made by Department of Labor leadership during the conference.
According to Ben, officials expressed strong support for employee ownership and indicated that ESOPs are no longer viewed through the same adversarial lens that characterized some prior regulatory environments.
Industry stakeholders also continue to push for clearer definitions around “adequate consideration” in ESOP transactions. Greater clarity could reduce uncertainty for trustees, business owners, advisors, and employees while improving consistency throughout the ESOP marketplace.
Why the Right ESOP Team Matters
Trevor and Ben emphasized the importance of assembling an experienced team when executing an ESOP transaction.
Successful ESOP transactions require coordination among trustees, valuation professionals, lenders, attorneys, and advisors. Having experienced professionals manage the process helps ensure proper documentation, independent review, and long-term sustainability of the plan.
A Real-World Employee Ownership Success Story
Ben recently helped a well-drilling and pumping company in Washington State complete a transaction that sold 49% of the company to its employees. The transaction created 65 new employee owners while allowing the founders to maintain operational control and obtain meaningful liquidity.
The result was a succession solution that preserved local jobs, rewarded employees, and diversified the founders’ wealth.
Stories like these highlight why ESOPs remain one of the most effective tools for balancing business continuity, employee engagement, and owner liquidity.
The Lending Market Has Shifted Dramatically
One of the most encouraging developments discussed on the episode was the current lending environment.
Trevor noted that regional and national banks increasingly have dedicated ESOP lending teams and are actively competing for ESOP transactions. This competition has resulted in attractive interest rates, ESOP-friendly covenants, and improved financing options for business owners exploring employee ownership.
Many lenders now recognize that employee-owned companies often exhibit:
- Strong employee engagement
- Stable cash flows
- Conservative financial management
- Lower default rates
As a result, banks are investing heavily in ESOP expertise and recruiting experienced professionals to support growing demand.
Looking Ahead
Between growing legislative support, a more favorable regulatory tone, and increased lender participation, the outlook for employee ownership continues to improve.
For business owners considering succession planning, ESOPs remain a compelling option that can provide liquidity, preserve independence, and create long-term wealth for employees. As awareness continues to grow, employee ownership is increasingly becoming a mainstream business transition strategy.
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Related Resources
About ESOP Radio
ESOP Radio is the official ESOP podcast from Menke ā where real stories of growth, succession, and long-term wealth building are told.
Hosted by Trevor Gilmore and Ben Spadt, the show features conversations and educational episodes designed to help business owners better understand employee ownership.
Disclaimer
This podcast is provided for educational purposes only and does not constitute legal, tax, investment, or fiduciary advice.
Phil DeDominicisĀ is an ESOP strategist and M&A advisor who has guided 300+ companies through ESOP formations, financing, and transactions overĀ 20+ years at Menke & Associates. He specializes inĀ selling ESOPāowned businessesĀ to financial or strategic buyers and inĀ helping ESOP companies acquire other businesses.
