Where does the money come from in an EOT?

When funding an Employee Ownership Trust (EOT) transaction, companies often use a mix of internal and external sources — depending on their size, profitability, and goals.

External financing sources

Bank loans: Traditional debt financing provided by commercial lenders based on company assets, cash flow history, and future projections. This is typically the most accessible and cost-effective form of capital, suitable for stable companies with strong cash flow.
Mezzanine debt: A flexible form of financing that sits between debt and equity, typically with higher interest rates and customizable repayment terms — such as deferred payments or partial equity. This option can help companies access additional capital when bank lending alone isn’t enough.
Third-party silent equity: Capital from investors, foundations, or mission-aligned funds who provide equity without seeking control, benefiting from long-term equity appreciation and a future buyback of shares. It’s often used by companies looking to bring in values-aligned capital without external pressure to sell or scale quickly.

Internal financing sources

Seller notes: The selling owner finances part or all of the transaction price, agreeing to be paid out over time via debt notes or earn-out agreements. This option simplifies the EOT financing process and can align incentives for growth.
Company share buybacks: Rather than dividends or bonuses, the company uses retained earnings to gradually repurchase shares from the selling owner. This financing option allows for flexible cash deployment, spreads taxation out over time, and decreases the selling owner's risk while still participating in upside.
Direct employee share purchases: Employees invest personal capital to buy shares directly, increasing commitment and motivation. This option is typically used as supplemental funding rather than fully financing the transaction.

For examples of how those sources stack together, see How the money works in an EOT transaction.