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How Is an ESOP Used to Refinance Outstanding Debt?

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In this video, ESOP attorney Kevin Long explains how an ESOP can be used to refinance outstanding debt.

 

Transcript

An ESOP can refinance outstanding debt using an issuance transaction. Briefly put, if there is outstanding debt on the balance sheet, a new loan can be taken from a bank, that money can be loaned to the ESOP, the ESOP subscribes to new shares and as a corporation makes contributions to the plan, the plan pays back its loan from the company which in turns pays back the bank. The contributions to the ESOP, which are used to make payments on the principal and interest on the ESOP loan, make the entire financing tax-deductible.

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