Six million small and midsize American businesses are expected to change hands by 2035 as their baby boomer owners retire, according to a McKinsey Institute for Economic Mobility report published in February 2026. About a million of those businesses will actually sell, in transactions cumulatively worth $5 trillion. The rest? Many will simply close, not because they're unprofitable, but because their owners never lined up a buyer.
That gap between "ready to retire" and "have someone to sell to" is the quiet crisis behind the so-called silver tsunami. Private equity buyers want scale. Strategic acquirers want synergies. And a huge number of Main Street businesses — the HVAC company with 12 employees, the print shop that's been on the same corner for 30 years, the specialty manufacturer with a loyal but small customer base — are simply too small to interest either.
Increasingly, the answer these owners are landing on isn't a buyer at all. It's their own employees.
The Succession Plan Nobody Talks About
Employee ownership has existed in the U.S. for decades, mostly through Employee Stock Ownership Plans (ESOPs). But ESOPs are expensive to set up — legal and valuation costs alone can run into six figures — and they're built for companies with dozens or hundreds of employees, not a five-person landscaping crew or a 15-person machine shop.
Worker cooperatives are the smaller, cheaper sibling of the ESOP, and they're having a moment. There are now roughly 1,300 worker cooperatives operating in the U.S., a number that has tripled over the past decade, with more than half of them launched in just the last five years. As many as 40% of existing co-ops trace their origin to exactly this scenario: a traditional business whose owner decided to sell to the people already running it day to day.
The math is intuitive once you see it. A retiring owner who converts the business into a worker cooperative:
- Doesn't need to find an outside buyer, market the business, or run a competitive sale process
- Can often finance the transition with the business's own future cash flow rather than requiring the buyer to have cash on hand
- Preserves jobs, institutional knowledge, and the culture the owner spent years building
- May qualify for meaningful tax relief on the sale itself
More than 58% of business owners in the McKinsey dataset have no documented succession plan at all. For an owner who's been putting off "the exit conversation" because every option on the table felt wrong, selling to the team already in the building is often the first plan that actually feels achievable.
Where the Money Was Supposed to Come From — and Why It Hasn't
The federal government has tried to make this path easier for years, with mixed results.
The Main Street Employee Ownership Act, signed in 2018, directed the Small Business Administration to make it easier for SBA-approved lenders to extend loans to cooperatives and ESOP-owned businesses using the agency's standard 7(a) loan guarantee program. It took until June 2024 for the SBA to actually issue guidance implementing the provision — six years after the law passed. That guidance let experienced SBA lenders process loans to a cooperative, or to a business owned by one, under their own delegated authority, without first routing the loan through SBA headquarters for special sign-off. In practice, that cut a meaningful chunk of processing time and friction out of a loan that used to require extra paperwork simply because of how the business was structured.
It was progress, but advocates were quick to point out it didn't touch the bigger obstacle. As Mo Manklang, Policy Director of the U.S. Federation of Worker Cooperatives, put it: cooperatives still "face overly burdensome administration for loans because of their ownership structure" — specifically, the personal guarantee requirement that most SBA 7(a) loans carry.
Here's the problem in plain terms: a conventional SBA loan usually requires anyone who owns 20% or more of the business to personally guarantee the debt. That works fine when there's one owner, or a handful of partners, each holding a large stake. It breaks down completely in a worker cooperative, where ownership is distributed across dozens of members, typically on a one-member-one-vote basis, with no single person holding anywhere near 20%. Lenders end up with no clear guarantor to point to, and many simply decline to underwrite the loan rather than work out an alternative.
The New SBA Lending Pilot
That's the gap the National Worker Cooperative Development and Support Act — reintroduced in Congress in December 2025 — is aimed at closing. Beyond the policy signaling of creating a federal United States Council on Worker Cooperatives (housed at the Department of Labor, tasked with identifying regulatory barriers and reporting a national strategy to Congress), the bill's most concrete provision for owners actually trying to close a deal is a dedicated SBA small business lending pilot program for worker-owned cooperatives, structured to guarantee $60 million in loans over ten years, alongside funding routed through the Community Development Financial Institutions (CDFI) Fund for the technical assistance groups that help these conversions actually happen.
A purpose-built lending pilot matters because it can be designed around cooperative ownership from the start — using alternative forms of collateral or a phased personal-guarantee structure tied to the cooperative's board rather than requiring one individual to backstop the entire loan. For a retiring owner, that's the difference between a cooperative conversion that's financeable and one that dies in underwriting.
What This Means If You're the One Selling
If you're a business owner weighing this path, a few things are worth understanding before you talk to a lawyer or lender.
There's a real tax incentive for selling this way. Section 1042 of the Internal Revenue Code lets an owner defer — and in some cases effectively eliminate — capital gains tax on the sale of stock to an ESOP or a qualifying worker cooperative, provided at least 30% of the company is sold and the proceeds are reinvested into qualified replacement property (typically stocks or bonds of U.S. operating companies) within 12 months of closing. To qualify as a worker cooperative for this purpose, the entity has to meet specific structural tests: it must operate under Subchapter T of the tax code, a majority of voting stock must be owned by members, a majority of members must be employees, and the board must be elected on a one-member-one-vote basis. This isn't a niche loophole — it's the same basic incentive Congress built for ESOP sales, extended to the cooperative structure.
The conversion is a governance change, not just a financing change. Turning a conventionally owned company into a worker cooperative means building out membership agreements, a patronage (profit-sharing) formula, and a governance structure where employees actually have voting rights over major decisions. Groups like the U.S. Federation of Worker Cooperatives and regional cooperative developers exist specifically to walk owners and employee groups through this, and lenders increasingly want to see that kind of technical assistance involved before they'll underwrite a conversion loan.
Bookkeeping has to be airtight going in. Any lender extending credit to a newly converted cooperative — especially one relying on future cash flow rather than a single guarantor's balance sheet — is going to scrutinize historical financials closely, because there's no individual signature backstopping the loan the way there would be with a conventional owner. Patronage distributions, member equity accounts, and the cooperative's capital structure all need to be tracked cleanly and separately from day one, both to satisfy the lender and to keep the co-op itself in good standing with the IRS's Subchapter T requirements.
That last point matters well beyond the day the sale closes. A worker cooperative that can't produce clean, well-organized books when a lender or the IRS comes asking is a cooperative that jeopardizes the very financing and tax treatment that made the conversion possible in the first place.
Keep the Books Clean Through the Transition
Whether you're the owner planning an exit or an employee group preparing to take over, the conversion itself is exactly the moment to get financial recordkeeping right — before member equity accounts, patronage allocations, and loan covenants pile up on top of whatever bookkeeping system the business has used for years. Beancount.io offers plain-text accounting that gives you complete transparency and full version-controlled history over your financial data, so every change to the ledger — including the one that happens the day ownership itself changes — is visible and auditable. Get started for free and see why a growing number of businesses are switching to plain-text accounting.